{ "episodeId": "SLP467", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "stephan_livera": { "name": "Stephan Livera", "role": "guest", "tag": "STEPHAN" } }, "segments": [ { "speaker": "stephan", "time": "00:09", "start": 8.55, "text": "Hi and welcome to Stephan Livera podcast, a show about Bitcoin and Austrian economics brought to you by Swan Bitcoin. The markets are going crazy right now and Swan is making it easy for you to buy Bitcoin and be able to transact even if your banking relationship is in question. Go to swan dot com or use the Swan app for safe and easy Bitcoin buys. You can set up a recurring purchase plan. Or you can do a smash buy, also known as a one time buy. Swan offers free custody in your own legally owned trust account, and you also have free automated withdrawals to your own self custody. And if you are with a business, this is a perfect time to add Bitcoin to your corporate balance sheet. Swan Bitcoin Treasury Solutions can make it easy for you to incorporate Bitcoin into your financial strategy, so you can automate your Bitcoin investment, custody, and management strategy, and you'll get expert guidance every step along the way. So go to swan dot com to sign up. Join a community of like-minded Bitcoin builders who are building on the future of Layer 2. This community is called Build on L2, it's a community by Blockstream. So if you are building on Core Lightning or the Liquid Network, go and check out this interactive community platform. This is relevant for you whether you are a builder, a product manager, a designer, or an engineer. There will be events, a mentorship program to fast-track your success, or simply explore a community space to learn something new alongside other Bitcoiners building the future of Bitcoin Layer 2. The website is buildonl2 l2 dot com. As always, not your keys, not your coins, and when it comes to Bitcoin security, CoinKite can help you with their numerous hardware devices, most notably the Coldcard MK4. This is a very reliable device, it's really easy to use, and you don't have to phone home to use this device, which is one feature I really enjoy. So you can plug it into the wall, you can spin it up, you can create a wallet, you can use it easily with wallet software such as Specter Desktop, Sparrow, or Electrum, or others, and Features with the MK4, so it's a fantastic tool for learning about Bitcoin as well. So go to coinkite dot com, use code Livera for a discount on your Coldcard MK4. Now, for this episode, we're talking about the unsustainable fiscal pathway that the US government and many governments around the world are facing, as well as the problems with the banking system that have emerged. James Lavis, author of the Informationist newsletter and also managing partner of Bitcoin Opportunity Fund, rejoins me on the show to talk. James, welcome back to the show. thank you for having me, Stephan." }, { "speaker": "stephan_livera", "time": "02:33", "start": 153.01, "text": "Always like talking to you." }, { "speaker": "stephan", "time": "02:35", "start": 155.21, "text": "Yeah, it's a pleasure always chatting with you as well. And, as we were just joking, there's, there's not really much to talk about today, is there? Hey? Yeah," }, { "speaker": "stephan_livera", "time": "02:43", "start": 162.87, "text": "that's pretty boring. We can wrap this, we can talk about soccer if you want, or football, you know? Yeah, rugby." }, { "speaker": "stephan", "time": "02:49", "start": 168.56, "text": "That's right. Yeah, yeah. we'll see if any of the NCAA is coming up. The NCAA basketball tournament. There's, I mean, obviously there's, there's a lot happening. You were just recently chatting about how the US Treasury isn't in a dire situation, so maybe that's a good place to start. And you were, I guess, commenting a little bit on the Congressional Budget Office as well and what they're reporting and, you know, their optimistic reporting. So actually, do you wanna just start with a bit of an overview? Yeah. What is CBO? What do they do? Why is this, why is this relevant? Right. So the CBO is a Congressional" }, { "speaker": "stephan_livera", "time": "03:27", "start": 206.92, "text": "Budget Office, and they periodically put out a report and it provides like budget information and economic forecasts for Congress, right? Or to Congress. And, and they, they kind of review where the Treasury is, how our debt situation is, how our deficit situation is, and, you know, our spending versus our revenues, which you and I both know aren't really revenues, they're just, tax collections. But, yeah, so they had one put out last May, and I dug in, I dug into that And, and, and wrote a couple of articles about the fact that we're, we're, we're, you know, we're in this situation here, Stephan, where as you and I have talked about, quite a bit that, We're in, we're in a, we're in a deficit situation that has put us into what we call a debt spiral, and it's just something we can't get out of. And so looking at that report back in May, we were hoping, well Maybe the, the Fed manages inflation and, and we get revenues, you know, GDP production up and, and our tax base is strong and they, they calm down spending a little bit, but Pretty much the exact opposite has happened. Inflation's raged out of control, it hasn't really, it helped, GDP enough to grow our tax base and, and, spending's gone through the roof. So why is spending gone through the roof? Well, you know, just to, just to unpack it There are three, basically three, mandatory expenses that we have at the US government, right? And boy, we're diving right in, aren't we?" }, { "speaker": "stephan", "time": "05:06", "start": 306.11, "text": "Yeah, let's do it, let's jump into it. I mean, the-- what, what are these big expenses?" }, { "speaker": "stephan_livera", "time": "05:11", "start": 311.39, "text": "Yeah, so there's three, basically three main expenses, right? And they're, they're called mandatory because they're either signed into legislation or they're, they're just, they're, long-term contracts, right? So, the first one is entitlements, which is the biggest Line item, right? So you've got Social Security, Medicare, Medicaid, and, and then, you know, you have your defense spending, which we don't know exactly what that is, but, we'll, we'll go through the numbers here in a little bit. And then the third, Huge expense is interest expense, it's just the, the interest on all those, all those bonds that we have, right? So, but when you add all of these up, you know, they're supposed to be under what your tax revenue is, and that way your tax revenue covers your expenses, and then you get to, you know, you get to put a little bit of money away, to, to pay down past debt or something, right? That's not exactly what's happening, and I, and I'm sure that a number of your listeners are, are already quite aware of this, but, the bottom line is, you know, when you look at our mandatory expenses, you add them all up, and this is, this is the entitlements and, and non-defense, but, when you look at all of our just entitlement expenses, it's three point eight trillion dollars, right? And then you've got, your, your Defense spending, which is somewhere they, they are saying is about eight hundred billion dollars. This is per year that we're talking about, right? And then, so if you're looking at the Congressional Budget Report They're expecting all in their, the mandatory expenses to be about three point eight trillion dollars this year, twenty twenty-three, and then the discretionary expenses, which include, it, it includes defense and other programs, that's gonna be another one point seven trillion. They expect, they expected when they were doing this report, now remember, this is all lagging 'cause the government likes to lag, they like to look at old data and then put out reports about it, or like the Fed likes to do, they like to look at old data And then, make their policy adjustments or policy moves off of that old data, which as we're going to see in real time in this train wreckage, that's not going to work really effectively. And God only-- I mean, God help the ECB, in Europe this morning when they raised rates by fifty basis points, I mean, they're so far behind the ball. But we can circle back to that because that's just, that's an incredible development. But anyway, so you have, all in all, if you add all that up, that's, the, the, the CBO is expecting six point two trillion dollars of expenses this year, right? Well, then circle back to what they expect, they expect to bring in this year about four point eight trillion dollars in revenues. Okay? So that's all of their income The, the individual income tax, the payroll taxes, corporate taxes, you know, this, this in, in includes stuff like, you know, the corporate taxes or, capital gains taxes, all in with penalties and ta- tariff penalties and all that, four point eight trillion dollars. Well, you don't have to be a math genius to see that, s- you know, four point eight minus six point two is a negative number, a large negative number. It's one point four trillion dollars that they expected going into this year that that's what the deficit was going to be. Well, the problem is that you know, some people say, \"Well, yeah, but inflation's up, the, the economic, economic activity is up. Clearly, this is going to get better than even their bad forecast here, right?\" Well, the answer's, the answer's wrong. first of all, the, the, the one major line item that we've been concerned about, we've talked about ad nauseum about, the last number of months is the, the interest expense. Here's the, here's the problem, right? We're operating in a deficit. So as our bonds that we have issued, all right? So all of this debt that we've issued, to private buyers, to sovereigns, whoever owns these bonds We're paying interest of about, somewhere about, seventy-five basis points to one and a half percent on, on average, with all the debt that's been issued over the last number of years, right? But the debt that's retiring, right? So the debt that's maturing The majority of it has a higher interest rate, or, I mean, has a lower interest rate, because we've been operating at zero interest rate policy absurd for a long time. So we issued these bonds at very low rates, and we've been, you know, as, as a government, we've been paying interest at a low rate, right? So the problem is because we're operating in a deficit, we have no money in our, in our treasury to-- we have no capital in our treasury to go and pay off that old debt. And we-- if you own a bond and it matures, month, you know, you bought a bond that's supposed to mature up to par, which is a thousand dollars. Well, they've gotta pay you that thousand dollars plus all the interest they, they've been paying you all along, right? So they paid you that interest, and now they've gotta give you that, your thousand dollars back, right? It's in essence what it is. The numbers are a little bit different because some of the bonds are, are no coupon and whatever, but The essence is they've gotta give you your principal back. Well, where's the principal gonna come from? They don't have it. So what do they do? They issue more debt. They borrow again. Yeah, they borrow again. So they issue more debt to pay down the old debt. The problem is that now they're issuing debt that's somewhere between three and a half and five percent. Okay? So now, you just know that concept. We're paying higher interest on our debt every single time a, a, you know, piece of debt rolls off the books, right? But we have about-- and so the next question is, well, how much is rolling off the books? Well, in the next three years, fifty percent of our debt is maturing. So as we sit here at these high rates, we're just increasing those interest payments every single month, every single month we're increasing those interest payments as we keep the rates high here. That's one major problem. And so We're starting to see that, that is, that, that's now not-- the net interest is now expected to be up from four hundred and forty billion dollars up to now six hundred and forty billion dollars, and that's just, you know, that's just their current projection, right? It could get worse if, if the, if, if the Treasury, or, I mean, if the Fed continues to raise rates, obviously. But the, the CBA, the CBO knows this, and they put- Talk about these charts and, and I'll give you these charts so you can, possibly put them in your, in your show notes or, or put them up on the screen here, but, so by now you would have edited this and you can see this, this first chart here, and they, they, they understand that the, this deficit is growing and as a per- as a percentage of GDP, it's just, it's not going to get any better. Now they only put it out here like ten years on this chart, but then look at the next chart, Percentage of GDP, I mean, it just skyrockets. I mean, they, they absolutely know that there's, that what they're doing isn't working and the debt is going to continue to grow, and it's not gonna just continue to grow in nominal terms, it's gonna continue to grow as a percentage of total, domestic product, the, the, the, the income base that they're, that they're using to generate, payments to these, right? So this is what we call- It's not looking good." }, { "speaker": "stephan", "time": "13:02", "start": 782.29, "text": "Yeah. And so as we've spoken about- Yeah, this is the debt spiral, and, you know, last, last podcast that, that we did, you know, we, we sort of covered some of this, and so I think it's such an important concept to grasp, it's that effectively it's running away from the US government, right? Like the amount that they're going to have to pay is running away, and it's not easy to outgrow the problem, right? Like maybe if we were having this conversation ten years ago, people might have said, \"Oh, okay, look, James, maybe there's a way we can" }, { "speaker": "stephan", "time": "13:35", "start": 814.53, "text": "And there are so many factors coming in. I think another really big important one is demographics. It's something I've been speaking about and thinking about, and I think many of us are talking about this as well, because some of these institutions, they came up at a time when, let's say, in America, the typical family might have been having three or four kids, the typical person might have been dying at sixty-five. Now, it's, it's going the other way. People are living longer, they're having less kids, there will be less workers to support people in retirement and to pay Pay for the big government and to pay for the big military, something has to give, right? And so there's just this fundamental problem, and I think this is something that you were touching on, just recently as well, around how tight this lending market is going to have to get." }, { "speaker": "stephan_livera", "time": "14:20", "start": 860.2, "text": "Yeah, and that's-- and then, and so that's the problem, is that it's, it's only getting worse, right? So you have the interest payments going up, and then the, the Treasury, they, they announced that they're, they're, they're gonna borrow three hundred and fifty this next quarter than they expected to, right? So, I mean, they, they, they-- and why? They actually, they actually put out a statement that basically said it's because of lower tax receipts and higher spending. And so they had a cost of living adjustment on, on the entitlements, on, on, social security. And, and then so if you look at it, we're gonna run a deficit of over two trillion dollars. Okay, so- But it's exacerbated now, and this is, this is kind of just my first take on it before everything happened this weekend with the banking crisis, right? So now you've got these banks who are trying to shore up their own treasuries and make sure that they're, they're, they're, well above capital requirements and liquidity requirements, and, and so what does that mean? That means they're gonna be, they're gonna, they're gonna, be a little bit slower to lend out Their capital, and, they're gonna be a, a-- they're, it's just gonna tighten the belt on the, the, availability of capital to small, small businesses and people, you know, and individuals. And so that just, that again is going to, it's going to decrease productivity and then decrease income, which decreases your, your tax base, and that's just- It's obvious, and that's going to happen, right? And it's starting to happen right now. We just don't know how tight it's going to get, you know? and then you've got the Fed coming out next week, and all the way up until, last Friday, it's, the, the momentum had been for, the expectation it was for the Fed to raise by fifty basis points, but with this liquidity crisis, with, with the banking crisis, right? people worried about getting their money out, they're worried about whether it's actually insured And how much is insured? And, you know, are there deposits? Are they, are they, in danger of being seized? And what's amazing about this is, I didn't, you know, I'm not gonna say that I foresaw this exact event happening, but looking at the Credit Suisse situation, I started getting, you know, questions about, hey, what happens if Credit Suisse does go bankrupt? What happens to all those deposits? And it's actually been laid out, through- you know, the Dodd Frank legislation, and then the ECB did this as well, where, and, and actually the, the test case was Cyprus, where they, where they, they seized bank accounts in order to, to, to pay off the creditors of these banks when, when they were going under." }, { "speaker": "stephan", "time": "17:13", "start": 1033.17, "text": "Yeah. Speaking of Cyprus, yeah, twenty thirteen. And you know what's funny for me is this, brings it back because this is ten years ago. That was actually the narrative for a Bitcoin pump about ten years ago as we speak, right? So Pumping, it was, it was something like, it started the year twenty thirteen, I wanna say in the teens, it was like fifteen dollars, twenty dollars in that range, one Bitcoin, right? Crazy. And over this next few months, there was a Cyprus bailout, and that was a massive run. And now, whether or not it was actually Cypriots going and buying Bitcoin, that's probably not really what's happened, but maybe it was the narrative. And so Bitcoin pumped to two hundred and sixty dollars and then crashed to, I think, like fifty dollars, right? And Happening ten years ago around this time." }, { "speaker": "stephan_livera", "time": "17:58", "start": 1078.44, "text": "This is the, this is the interesting thing, so you're seeing Bitcoin kind of decouple here now. as much as I wish it were, because it was actually decoupling because it's a str- it's, it's harder money, it, it can't be manipulated, it's decentralized, i-it's, you know, it, it can't be, it can't be seized, you know, i-it, they, all of that, they're really strong important, aspects of Bitcoin, The reality of what's going on here, but this goes back to Friday when, when everybody realized, you know what, the Fed is gonna have to either stop raising rates or lower rates here, and so Bitcoin- It's been, it's been the tip of the risk on asset s- spear for a while now, and so it, Bitcoin sniffs this out and, and just takes off before every other asset. Part of that is because, you know, it trades twenty-four seven, and over the weekend, people realize, \"Oh my God, like the Fed may have to stop here, they may have to pivot.\" Well, what does that mean? That means that they'll loosen up the, the, the, the, you know, the capital, and the- And the restraints on, on risk on assets, so people would buy stocks, they'd buy tech stocks, they'd buy Bitcoin, you know, and they'd buy gold and silver, so it took off. But then as people realize, well, you know, these, the, the numbers that are coming in still, the economic numbers that are coming in still are strong enough that it doesn't really give the Fed the ability to stop raising rates here or lower them right now. Because the Fed and the Treasury did bail out the, the, banks that were in trouble, you know, and so they did shore up the inv-- the, the depositors. And so, they kind of, they, they kind of quelled that, that crisis. And so now you've got the Fed in a terrible position. I mean, not, they've put themselves in the position, and they've been in a terrible position, but now you've got the Fed still trying to fight inflation, which is being caused by, it's, it's still a Byside issue, quite a bit of it, from what I can tell, and they're trying to fight it by raising rates, and they're raising rates on a leveraged system. The system is so levered that cracks are, cracks are showing and things are breaking. And so, quite honestly, what, what happened was that bank broke. Yeah, there were, there were things overlooked. They could have done better. They could have had interest rate hedges. And, and so for your listeners- Yeah," }, { "speaker": "stephan", "time": "20:35", "start": 1235.27, "text": "I mean, we should- Just kind of go through a little bit of an overview of, a little bit of what happened there, and it is relevant to Bitcoin as well. So I guess there were probably three banks that we're talking about here. There was Silvergate, who were, I think they-- now their case is maybe a little bit different because I think they sort of got into trouble and they voluntarily said, \"Hey, we're going to shut down, pay it back, pay everybody back.\" The next one is Silicon Valley Bank, which is obviously big in the tech VC world. A lot of small companies, and Silicon Valley Bank, and, you know, as I understand, they essentially had this interest rate risk problem, that they had a lot of these bonds. We'll, we'll talk about that. Yeah. Yeah. Yeah. Yeah. Let's get into that. And then, I guess, the other big one was Signature, which also got shut down. So, do you wanna just give us your kind of high level, explanation of what went down, especially-- Well, probably we should start with Silicon Valley Bank or" }, { "speaker": "stephan_livera", "time": "21:30", "start": 1289.77, "text": "Silvergate. Well, yeah, I mean, it's, it's-- to super simplify it for everybody, you know, a bank takes in deposits from, from, customers, and they could be individuals, and they could be, they could be, they could be, corporations, companies, and Silicon Valley, no surprise, has massive, massive, accounts from venture capital firms and from entrepreneurial startups, tech startups, right? So small companies, so they have all these corporate- Accounts, not individuals, so they're, so already right there, that, that puts them at risk because each account can take out so much money if they need that capital, right? So, individual accounts and, and personal accounts are much stickier typically, right? Alright. So, so what happens? Well, they get these deposits, and then they loan out eighty-five to ninety percent of those, deposits, they loan them back out to other customers. Right? So they get the money in, they put some aside, and then they loan the rest out. Well, the, the amount that they put aside to put in their own treasuries, right? To put in their reserves, well, they have to do something with it. So what did they do? Well, the managers, you know, the investment managers at the bank, they were watching the Fed and had decided, well, the Fed is telling us that inflation is just transitory. It's gonna be over soon. The, the rates, if you look back, Stephan, if you look back on in December of twenty twenty-one Okay? The Fed governors, they do their dot plot, right? They plot out where they think, they think interest rates are going to be. You know, the average-- I'm not gonna put you on the spot here, but the average dot plot, the average, you know, governor and, and Fed official thought that in a year from then, right? So the end of December 2022, they thought the interest rates on average were gonna be at point eight six percent. So they were off by about four percent, which is, which is big. Unbelievable. I mean, it's just un- it's, I mean, it's four, five times what-- so they raised rates like Powell put rates on a, on a rocket ship, right? Just raised them straight up. And so banks were caught flat-footed. The ones who were, who weren't, who, who, who believed them, bought these longer dated treasuries with that capital and put it in their, in, in their reserves. So they've got these longer dated treasuries expecting, well, rates aren't gonna go up that much, we don't have risk because they're risk free bonds, right? Well, no No, you have interest rate risk. And what does that mean? That means if, if you hold that bond to maturity, yeah, it's near risk free. Why? Because the, the, the United States government's gonna print enough money to pay off your debt, you're gonna get your dollars back, right? That's, that's a ninety-nine point nine nine nine nine percent probability, right? So, but- If you need that capital before that debt matures, you have to sell it in the open market. Well, what happens in the open market to, to debt? There's an inverse relationship between price and yield, right? So if a, if a bond is yielding four percent, it's going to be priced lower than a bond that's yielding one percent, right? Because to make one percent on the capital that you give somebody, it, you know, you, you don't have to, you don't- We don't have to make up so much capital. So the bond goes down in price as the yield goes up. It's just that inverse relationship. Okay, so what do we know happened? Well, they bought these bonds, long term bonds, like that, we're talking five year, seven year, ten year, fifteen year, whatever they are, and their, their mix of bonds. And so they, they're obviously, they can't hold them to maturity if somebody wants their money back. Alright. So they go into the market to sell those. Well, now those bonds that they bought that were percent, one percent, or now the, a similar bond in the market is yielding four or five percent. Well, how are they, if they go to sell those, nobody's gonna buy their bond at the price they bought them at, they want a four or five percent yield. So what does that mean? That means the price of the bond goes down, so they take a loss, a massive loss. And if you, if you, it's called duration risk, and if you, you, you know, plot that out, seven, ten, fifteen years, that, the movement on those bonds Is, is enormous. It's twenty, thirty, forty percent, depending on the bond, you know? So, these, they, they got absolutely annihilated when people wanted their money back They had to sell what they had in their treasury to meet those calls, and then it ended up being that they were selling so many at such a large loss that it became clear that as people were getting more and more worried, as companies were getting more and more worried about this, and they were all draw-drawing out their capital, this is called a run on the bank, and their asset and liabilities were mismatched, they, they went under, they just couldn't meet the call. And so the FDIC, the Feds, had to come in and seize the bank. And take over. Yeah. And that's what happened." }, { "speaker": "stephan", "time": "26:55", "start": 1615.33, "text": "Yeah. Okay, so let me, try and just walk that through, just to make sure everybody's following us here. So this bank, Silicon Valley Bank, in this case, was taking in depositors, as in individuals and, ma-mainly businesses, they were putting in their money. Now they've got to invest that money, and so they should theoretically be able to redeem when those customers want to, you know, because they want to take their money out of the bank. Right. And meanwhile, they had gone Where the yield at the time was low, but the price was higher, let's say, right? Because they were in an environment where they were expecting the interest rates not to shift so much, right? And rightly or wrongly, now probably wrongly, but the-- for, you know, a long time, rates have been very low in the US system. And so what happened is over time, because rates dramatically shifted and the Fed was raising rates so quickly, all of those bonds in the open market, to be clear If they were gonna hold to maturity, they probably would have been okay if they could, if they could have, if they could afford to do that. But unfortunately, because those bonds in the open market aren't worth what, you know, they, they were previously when, when this bank paid for it They are now in a position where they can't meet the obligations of those customers who want to withdraw because they're scared, they're doing a bank run, they're worried about what's happening. That's right. We're correct so far, right? And so then, then what's happened is in the US system, there's this entity called the FDIC. They function as an insurance. Now, typically, the rule was up until two hundred and fifty thousand is the amount that will be insured, or, you know, you'll be made whole as a depositor. So that, I guess, that Now the big question that we're seeing now is because there's a debate now saying, \"Oh, look, it wasn't a bailout, it was the depositors being made whole, right?\" And so, yes, I guess you could say, right, in this, in one sense, okay, yes, the, not, it's not like two thousand and eight The shareholders were wiped out. The bond-- you know, the shareholders are wiped out. The executives of the bank are probably gonna be in court, in the court ca-- in the courts for years. You know, there are court battles being fought about it now probably, or will be soon. The question is about should the depositors be made whole, but I think the other important question is what kind of things does this portend for the system? Because that, it's not a free lunch, right? Somebody somewhere is paying for it. And so in the case of the FDIC's DIF, the Deposit Insurance Fund, that is paid for by the account holders at American banks in general, right? and so if the amount of money in the DIF gets tapped out, where- Where they go when they need more money. They either go to the, well, they're either gonna have to charge more premiums to the account holders or they're gonna go cap in hand to the US government. And then guess what? That's taxpayer money who is having to eff- effectively backstop the system, isn't it?" }, { "speaker": "stephan_livera", "time": "29:47", "start": 1786.76, "text": "That's exactly right. And that, you know, they did this test run with Cyprus, that's right, back in twenty thirteen, and, the ECB loved it. They said, \"Look, we're able to, you know, make, make these Which out there at the time, I, I believe it was about forty-eight percent of, depositors, the depositors lost on average forty-eight percent of their deposits by bailing in the bank and saving them. Now what they got back was equity in those, in those banks, and it was pretty much worthless. So, yeah, so, and the same thing, so now you, you flash forward, we had that Dodd-Frank, you know, legislation and it basically- Basically said that the, the government can't bail out any single entity anymore, and so you had these banks now, and you've got Silicon Valley, who they're not gonna get a bailout. Well, they gotta bail in, which meant that the depositors were gonna have to pay for it. They're gonna have to lose anything that wasn't insured, which anything above two hundred and fifty thousand dollars. Now, remember, this is, this is a place where, I think over half of venture capitalist firms are banking at. So you've got these venture capital firms that have all this capital here, far more than two hundred and fifty thousand dollars, and you've got those companies that've got their payroll in there, they've got their, they've got their treasury in, in the bank, they've got millions of dollars in there, and they're only gonna get two hundred and fifty thousand dollars back? It would be pretty devastating to business. And so I think what happened was the Fed and the Treasury stepped in, they saw this, and they knew, \"Wow, if we let this bank go under and we allowed the bail-in, the bail-in, you know, leg- legislation to, to fall through that law, we could start a, you know, a snowball effect that would cause runs on other banks, especially small regional banks.\" And, And cause the system to literally collapse. And so that's what their, their choice was, do they, do they bail in or do they, do they step in? And they stepped in. So what they ended up saying was that, you know, in this emergency action, they're gonna backstop all depositors e-even above their insurance levels. So that basically sent a message to the world That if you deposit your money in a US bank, then you're backstopped by the US Treasury. That's literally what they just told the world, which is incredible. It's, it's absolutely incredible." }, { "speaker": "stephan", "time": "32:28", "start": 1948.09, "text": "And on one hand, they try to lie and say, \"Look, there's no impact to the taxpayer.\" Well, maybe not now, but if it happens again, guess what? Guess who's on the hook? Because it's also common knowledge that the FDIC, in their insurance fund, only has a tiny percent-- it's like one percent or less than one percent of, of total bank Bank deposits, so they wouldn't be able to make it whole if this were to start happening on a more regular basis." }, { "speaker": "stephan_livera", "time": "32:51", "start": 1971.45, "text": "So there's no way to do it unless they print money. Unless they print money. There's just, there's just no way to do it. You can't-- They wouldn't be able to charge enough fees to make up for that, to, you know, it just wouldn't work. Yeah. So, but so now what do we see? Well, we see the biggest banks gathering depositors, gathering these, these company and corporate accounts, why? Well Legislation and Dodd Frank, and you, and you know that there are, there are banks that are deemed globally systematic important banks, right? GSIB, right? These are globally systematic important banks. What are those? Well, we know that they're JPMorgan, Bank of America, Citigroup, and Wells Fargo. They cannot fail. They, the, the, they will backstop them because they're globally systematic. So if you're a business and you've got a million dollars Well, are you gonna leave your million dollars over at your regional bank, your small regional bank, or are you gonna move that to one of these banks to be sure that it's backstop no matter what happens? Well, of course you're gonna move it, or you're going to spread it around, and that just produces other headaches, but, you know, that, that you have basically two choices. You have to either make sure that you only have-- you don't have more than two hundred fifty thousand dollars at any one bank, or you have your capital at one of these, and that way, Happens. Well, the large banks get larger. It's picking winners and losers, isn't it? The power consolidates. It is. That's-- This isn't true capitalism. Yeah." }, { "speaker": "stephan", "time": "34:23", "start": 2063.29, "text": "Or more and more people will learn to use Bitcoin, right? Obviously, there's an obvious case here where businesses should be thinking, from an operational perspective, you should be holding a small amount of Bitcoin in your self custody, so that way, even if there is a bank run and things go wrong, you can still make payroll, you can still operate." }, { "speaker": "stephan_livera", "time": "34:39", "start": 2079.44, "text": "That's right, even with the volatility, right" }, { "speaker": "stephan_livera", "time": "34:46", "start": 2085.5, "text": "Crazy world, I mean, we're seeing more things this year in the last, in the last few years, we see something that, you know, we've never seen before. Every few months now, it's just incredible. So, but yeah, the, the system is fragile. we're seeing, y- and it's, this isn't anything that is new, you know? We saw, look, we've been talking about the Bank of Japan and, and, you know, how much debt that they've been buying because of yield curve co- Control, they're trying to keep their yields down in order to get inflation up. Why? Well, they have, you know, Ja-Japan has two hundred and fifty plus percent debt to GDP, they really have to start paying down that debt, right? So how do they do that? They've got to get inflation up, they can't have deflation, right? So they've got a problem. It, it's different, it's the demographics are different, they're a net exporter, we're a net importer, all of that, but the bottom line is, the Bank of Japan" }, { "speaker": "stephan_livera", "time": "35:46", "start": 2146.22, "text": "that line that no other central bank has ever crossed, where they now own over fifty percent of their own bonds. So they're the largest owner of their own debt in the world, which is just incredible. That's number one. And then we saw what happened this summer when the ECB Finally started to raise rates. They finally decided that, \"Oh, we're gonna start raising rates 'cause inflation's up over double digits.\" They did this in July, right? The rates were still negative at the time. And they've finally started to raise them, and now we're seeing that they're struggling to contain inflation, yet they're, they're seeing cracks in the system, right? So immediately after they did that, you saw a run on, Italian ten-year bonds because, th- you know, investors are worried that the, the southern countries, that they're, they're not strong enough to handle the rate rises and, and their banks will, they'll, they'll suf- they'll suffer from it, so. So they immediately announced this, transition, transition protection tool, whatever that is, an instrument, a TPI, and, and basically that's just saying that they can use, they can, they can use Germany's balance sheet to, to, to leverage the system and, and, and do yield curve control and just hand the bill to Germany. And it, it, in the target to overnight, you know, settlement system, it's, it's ludicrous. There's no way to even settle it. So They, we saw that happen. And then this, this fall, we saw the UK situation where the UK pensions seemed to collapse almost overnight, which was just incredible. Well, what happened? You have massive leverage in the system. The, the leverage is so great that these companies, these, these investment managers, they've been so starved for yield that they're having to lever up these so-called low, you know, low risk or no risk investments investments in order to get the yield that they need, right? Alright, well, so how does that work? they're doing these leveraged debt instruments. Why? Their pension funds Then they have these obligations, right? So pension fund has pensioners, and they have obligations out in the future. They have huge spreadsheets and, you know, and they, and they model out everything that they think they're gonna, they're, they're going to owe in the future according to people's age and retirement and all this, right? But they know what, what that number is. And when you live in an, an environment where just two years ago there were fifteen trillion dollars of negative nominal yielding rates in bonds in, in Europe, and you're in, you're in the UK, you're struggling to get any yield. You, you, it's very difficult to find bonds that have any yield that will help you have enough money in the future You know, get enough of a return on your investments to meet those obligations in the future. So what do you do? Well, you use a debt, a leveraged instrument, a, a swap. And so these are called LDIs, levered debt instruments. And what they-- what all, all it means is that they were using these UK gilts and taking that, that return and multiplying it by o-- by, by owning, you know, four or five or six times times the capital they put down. So, say you, you bought a bond for, you know, point five percent, right? Well, if you levered that up six times, then you're getting three percent, right? But remember, you've levered it up six times, so you've only put down a portion of your capital to get that swap. Alright. So if you own a swap, you're on margin. Okay. So now you've got all these UK pension funds who have all this, these swaps, they're on margin, up and down the wazoo, like massive margin on these things. Some were margin down to like, I, I think five or six percent, right? So even lower than that. But so what happens? You have a new finance minister that comes in and says, \"We're gonna have a, a historic tax break. We're gonna cut taxes a- Across the board, and it's gonna be great, it's gonna generate, you know, a, a, you know, a ton of, economic, activity, and it's gonna be fantastic, and people say, \"Well, but how are we gonna pay for that?\" Tax cut. And he, he didn't have, he said, \"Well, we're, we're just gonna-- we, we're not, we don't have a plan for that part. We're just gonna, we'll just borrow more.\" And the, you saw, you saw the UK gilts, which is the same thing as a treasury out in the UK, sorry, is, the UK gilt market just collapsed. People started selling bonds. Why? Well, they don't wanna own something that's denominated in a currency that's clearly going to be devalued tremendously because Because of what the Bank of England would have to do is print more money to buy those bonds in order to make up that tax deficit, right? So" }, { "speaker": "stephan", "time": "40:53", "start": 2453.0, "text": "back to the show in a moment. Mempool.space is my favorite Bitcoin block explorer. It is a multi-layer ecosystem, and mempool.space is showing you all the things that you need to see. You can see the mempool, you can see the blockchain, you can see se-second layer networks like the Lightning Network. With mempool.space, you don't even have to trust a third party. It's free and open source. You can host it. It yourself, you can even install it on some of the well-known full node distributions like Umbrel and RaspowBlitz and others. Now, if you're with an enterprise, Mempool.Space has custom mempool instances. You can have your company's branding, increased API limits, you can have increased access to the team for feature requests and more. Go to Mempool.Space/Enterprise. Have you ever been to Prague? BTC Prague is coming up, it's going to be on June 8th to 10th. So, take out your diary, take out your calendar, mark those And hotels. I'm gonna be there, I'll be one of the MCs for the conference, and I'm really lo- looking forward to this one. This is going to be the biggest Bitcoin event in Europe. It's gonna be a fantastic event. There'll be multiple days, there'll be a business B2B focused day, an industry day, and there will be two main conference days, as well as some side events. So make sure you come to town, make sure you plan this out. There's gonna be an amazing lineup of speakers. Michael Saylor is coming in person, as well" }, { "speaker": "stephan", "time": "42:13", "start": 2532.87, "text": "For a discount on your ticket. When it comes to securing your Bitcoin, especially if we are re-entering a bull cycle, it's time to think about your security and upgrading to multi-signature. With multi-signature, you can remove single points of failure from your setup. Unchained Capital makes it secure, transparent, easy to use, and sovereign because you are the one able to unilaterally spend your coins in your multi-signature vault. Unchained have a concierge onboarding program where you-- they can help you set up your multi-signature vault. Vault, and they have a range of other added services such as loans and a trading desk. So to sign up, go to unchained dot com. And now back to the show. Well, I'm curious, James, why, why in your view then, have people not come to the same realization with US bonds? Is it that they believe that they will be not-- that, that the US dollar won't be inflated in the same way? Well," }, { "speaker": "stephan_livera", "time": "43:06", "start": 2585.79, "text": "the US has, you know, we have, we have the benefit Rightly or wrongly so, we have the benefit of being the reserve asset of the world with the US Treasuries. And so, if you, if, if, if you can't issue debt in your own currency because it's not strong enough, then you're, you're likely issuing it in US dollars, which means that you're basically using Eurodollar debt, and which is- More or less selling treasuries, right? So, and so we have the benefit of that, which means that there's the ultimate confidence in all the fiat currencies, all the sovereign currencies in the world, the ultimate confidence is in the US dollar, it's in the US Treasury. And so it's just a confidence game, Stephan, that's all it is. And so, but it, it, because of that confidence game, it's become-- it's entrenched in the, in the global financial system, and if the, if the Treasury collapsed The entire global financial system would collapse, it's just simple." }, { "speaker": "stephan", "time": "44:04", "start": 2644.33, "text": "Yeah." }, { "speaker": "stephan_livera", "time": "44:05", "start": 2644.69, "text": "So, yeah, so what happens? The gilts collapse, they go through margin calls, and it just snowballs, and next thing you know, pension funds are calling the, the Bank of England saying, \"We need to, to be rescued, or we're, we're literally going to be insolvent this afternoon.\" And it happened like that. Why? Because of leverage, leverage in the system, period. Yeah." }, { "speaker": "stephan", "time": "44:25", "start": 2664.7, "text": "And this kind of thing is like very degenerate, right? Like, you know, it Like degens gambling on BitMEX and things like this, and I think in years gone by or in decades gone by, these pension funds were meant to be very conservative, right? They-- that's, that was their outlook, that was the way they operated. And so to, to see even these pension funds go to this level, it just shows you how far things have degenerated and how far things have fallen, isn't it? It hasn't, has it? And" }, { "speaker": "stephan_livera", "time": "44:53", "start": 2692.96, "text": "how quickly, how quickly something can unwind. Just how rapidly. I mean, look at Silicon Valley Bank. You started getting whispers oh, they've got a big mark-to-market losses on these treasuries. I better get my money out now before they don't have enough for everybody. And then that's what caused a run on the bank, and just in a few days, boom, it's, it's insolvent, and it happens so fast. And there are other banks like this, you know? And that's what people are trying to-- they're, they're scrambling around trying to see, you know, is, is Regions Bank okay? Is, you know, I mean, what, like You're just operating as, as though, well, you're looking at a bank as an investment. Well, what's its book value? Like, what, what are, you know, what, what kind of, income is it generating? I-, it's just, what are their interest rate, you know, matches? And you're looking at it that way, but Suddenly you're looking at, is this thing insolvent? Is this-- is it a going concern? You know? It's just crazy, and that's where we're at. So it-- and it's a little bit frightening. And so yes, going back to your original statement, Bitcoin absolutely should be in everybody's asset holdings. You don't even have to own that much, but you have to own something in order to have insurance against a total collapse of it all. And because if it collapses, if the- If the entire financial s-system collapses, there, so many people will be unbanked and they'll be moving their assets into something that's decentralized, that can't be seized, that can't be, you know, taken over and lost as long as you know your keys, right? I, it seems to make sense that this should be Bitcoin's moment. Will it be? Well, I think the Fed and the Treasury held that off for a bit by stepping in and, and keeping The system solvent. And we're gonna see, though, we're gonna see as, as people keep hearing this and seeing it, they're gonna be reminded that this system's a lot more fragile than people realize, and it's all about trust. One, one point. Yeah." }, { "speaker": "stephan", "time": "47:00", "start": 2820.33, "text": "Yeah, that's right. And I think one, one thing to add here is that more and more people are now aware of some of the problems with the system. And I think another example is just more and more people are aware of the term fiat money. Nowadays, than let's say ten, fifteen, twenty years ago, it's now a common term. Yeah. And now, I think post this recent round of collapses or almost collapses is awareness of fractional reserve banking. I think this is actually something where a lot of people were just operating in this world where they just kind of thought, \"Oh, it's kind of all there, right?\" Like they were almost operating in this world where they thought it was full reserve, when in fact it's not. And, you know, they, they didn't understand that you are- A creditor, right? Like they just, you know, I think a lot of people don't think through that concept, they just think, \"Oh, I've got a thousand dollars in my bank account, and it's just magically there, ready for me to take it out whenever I want.\" That's right, that's right. And now more and more people are starting to understand this concept. Now, and you could argue, okay," }, { "speaker": "stephan_livera", "time": "48:01", "start": 2881.11, "text": "they're realizing that when you say, so a few things. Number one, and still people still think this, and it just blows my mind, but they" }, { "speaker": "stephan_livera", "time": "48:13", "start": 2892.74, "text": "Somebody actually asked me this question. This isn't a stupid person, right? They're a professional, an executive in this world. But our, our, our financial education is so, i-it's so dismal and, and the, and the facts are, are so obscured that people don't understand exactly what, what is going on with the, the government and money and bonds and all that, right? So this person asked, she said, \"Um, so to pay for this bailin-- bailout or saving these banks, to shore up these banks, like...\" Is the church gonna just, just then have to sell some of its gold? And I was like, I, I don't, what do you-- No, they don't have the, no. So people still think, and it's not-- I mean, it actually isn't even funny, you know? People still think. A lot of smart people still think that the US dollar is backed by gold. It isn't backed by gold. Like, everybody just listen, it isn't backed by gold. It's backed by nothing but trust, period. So, no, it's-- there's no gold Fort Knox a long time ago. There is no, there, there's no gold protecting the US dollar, that's number one, right? So people are starting to understand that, that, and which is really important. And then going back to your other point, which is people are starting to understand that, and this is really important this last week, that, oh, damn, if there's a run on the bank, they may not have my money because of what you just said, fractional reserve. And I think, you know, sometimes we think that we're just in our echo chamber here, but enough People filter in to see what's going on and, and, you know, they read your, your podcast, they, they read the title or the show notes and they realize, hey, maybe I oughta listen to this. You know, maybe these bitcoiners aren't, aren't so crazy after all, because we've been talking about this bank situation, the debt situation, the leverage situation, the interest rate situation, the Fed, central banks, we've been talking about this for years now, you know? And unfortunately, a lot of- Oh, yeah. If it's coming to fruition." }, { "speaker": "stephan", "time": "50:14", "start": 3014.06, "text": "Yeah, it's a, I mean, if you hang out in libertarian, Goldbug, Bitcoiner circles, this is, I mean, we've been talking about this literally for decades, right? Ron Paul talking about end the Fed, audit the Fed. there have been people looking at US debt clock, you know, that's now just, a-as we were talking about, like this massive level of debt, and that isn't even counting what's called the fiscal gap. That's not even counting, like other things that are still yet to be paid" }, { "speaker": "stephan_livera", "time": "50:43", "start": 3042.78, "text": "Of the, the, the liabilities when you add 'em all up, you know, and you look at that debt clock, it's two hundred trillion dollars, right? So, I mean, it's-- but it's really hard for people to- Conceptualize, what does that mean? Like, what, how does that even relate to me? And these are what you're s-talking about, the unfunded liabilities. Like, how does that even relate to me? Well, maybe my kids will pay it off. We'll fi- we'll fix it. We've, we've balanced the budget before, right? But you've got three choices. You've got three choices in, in a situation like this. You can, you can either cut spending, you know, austerity, right? But that's political suicide. Who's gonna cut spending You're gonna lose voters no matter what, and we know that policy is shaped by voters and voters are, you know, but policy's also shaped by special interests So what program are you gonna cut to, to hurt a special interest group that's going to then not fund your next campaign? That's really what it comes down to. It's all bullshit, right? So that's number one. They're not-- there's no austerity that's coming. So I get comments like that all the time. Well, we just need to, you know, we need to spend less. Good luck. Okay, so that's number one. Number two is you could raise taxes. You could raise taxes on the wealthy, on the, you know, on the people who, who, you know, that, that should be paying more, but, or on companies, you could raise a corporate in-- you could raise a corporate income tax, you could tax unrealized gains. What a mess that would be. That would only serve to what? It would, it, it would reduce productivity. It just has the same effect in the long term. It doesn't-- that won't work. And then, you know, your third choice is to issue more- More bonds. That's it. Issue more debt. That, and that's the easiest one. And so they keep doing that, keep, keep raising the debt ceiling, and we can talk about that if you want, but, you know, and then finally, if they keep doing that, what's their, what's their next move? Well, their next move is to let inflation run a little bit hotter than everybody realizes. Why? Because if you let inflation run hot, then you get GDP up in nominal terms, right? Because the dollars, like, there's more dollars, it's, the more, you know, the GDP goes higher because there's more dollars in your bank" }, { "speaker": "stephan", "time": "53:09", "start": 3188.73, "text": "account. And you're inflating away the real terms of the debt. So you're basically making it easier for you to repay the debt by printing more money. Correct." }, { "speaker": "stephan_livera", "time": "53:15", "start": 3195.01, "text": "You're, you're, you're taxing dollars that are cheaper, and then you're paying off old debt. So how would you like to have a debt for," }, { "speaker": "stephan_livera", "time": "53:24", "start": 3204.12, "text": "a Right? You buy a bond today for thirty years and it's gonna yield you, you know, four or five percent, okay? well, for thirty years. We all know that real inflation, true inflation is much higher than that. So what's a dollar gonna be worth? If you put a thousand dollars down today and you get a thousand dollars back in thirty years, what do you think that's really worth? Is it worth the interest that you got along the way? A whole lot less, right? So, y-y-you know, that's the problem, and, and so as people are beginning to realize this, they're realizing that we're just inflating away the old debt, and that's where the confidence begins to, to wane, and that's why when you get- You know, massive countries like Russia sell all their treasuries and say, \"I'm not gonna, you know, I don't trust that the inflation numbers are right and that this is a good use of my own assets, m-the res-oil reserves in my ground. I'm not going to, you know, monetize those with US treasuries and get paid dollars that are pretty much worthless in ten, twenty, thirty years.\" So they w-were-- they, they, they completely sold their, their US treasuries and are- The largest buyers are, are starting to get skittish about that. That's a problem, you know? That's a major problem. So, yeah. It's a confidence problem, right?" }, { "speaker": "stephan", "time": "54:48", "start": 3288.21, "text": "Yeah. The confidence game. And I think as you were alluding to, this factor of US dollars and US Treasuries being treated as a reserve asset around the world. So in effect, the US government has more bagholders all around the world. It's not just US citizens. And if you have a lot of bagholders, you can print, print, print, print it up more on On the margin, you can print more than you otherwise would have been able to. So it's all part of this confidence game of retaining this image that the US Treasuries are the risk-free asset, and if you're a rich person, that's the safest place you can be. And it's unfortunate because a lot of people around the world today, obviously it's tough right now out there for a lot of people, they don't have savings, a lot of them. And so then you look at what are the wealthy people doing? A lot of them think of bonds as the safe thing to hold." }, { "speaker": "stephan", "time": "55:38", "start": 3337.77, "text": "Bonds and bonds, and they are unfortunately the ones funding the big government, the welfare state, the big military, all of this because they haven't stopped to think about the broader implications of this system as we're, as we're talking about. Right." }, { "speaker": "stephan_livera", "time": "55:51", "start": 3351.07, "text": "And so if you, like, and if you pull it down to simplest terms, right? And we have, we have a saying on, Wall Street is, \"If I, if I owe the bank a hundred thousand dollars, it's my problem.\" But if I owe the bank a hundred million dollars, it's the bank's problem. Well, I'm the US government in, in this instance, and the bank is the rest of the world, right? So we owe the rest of the world thirty-one point five trillion dollars. It's the rest of the world's problem. And that's what we've done. And so now the whole world knows this, and they're like, \"Well, we've gotta keep it going, we've gotta keep this charade going as long as we can. \" And hopefully, you know, and people are, are being selfish. They're being-- they're saying, \"Well, you know, the Jamie Dimon's and, and Charlie Munger's of the world, they, you know, they've, they've benefited immensely from this system. \" This Cantillon effect, the Cantillon effect, right? They've benefited immensely from this system, so do they want to change? No, of course not. And they wanna keep the charade going for as long as they can, you know? And make as much money as they can and live the life that they're living. and that's the problem. You see the debt clock, you can't even conceptualize thirty-two trillion dollars of debt. Like, what does that mean? You know? That's, that's hundreds of thousands of dollars per-" }, { "speaker": "stephan", "time": "57:09", "start": 3429.22, "text": "Yeah. These numbers are just so astronomical No person can even really conceive of them. and I, I think the other question- It's" }, { "speaker": "stephan_livera", "time": "57:17", "start": 3437.07, "text": "obvious it'll never" }, { "speaker": "stephan", "time": "57:18", "start": 3437.91, "text": "be" }, { "speaker": "stephan_livera", "time": "57:18", "start": 3438.07, "text": "paid back." }, { "speaker": "stephan", "time": "57:19", "start": 3438.65, "text": "We'll just" }, { "speaker": "stephan_livera", "time": "57:19", "start": 3438.93, "text": "keep kicking it. Yeah. Yeah. Keep kicking it down the, the road." }, { "speaker": "stephan", "time": "57:22", "start": 3441.69, "text": "Yeah. And I think the other question I have is, we are going to see governments try to obviously maneuver this situation as best they can. Of, of course, it's a terrible situation, and of course, the honest way would be, you know, government not involved in the money or banking system at all, let it full- be fully privatized Is they're trying to do their best to sort of tinker in certain ways to keep the system alive. So, probably a good example is, this recent, stepping in, as you said, as the Treasury stepped in, they were also saying, \"Hey, you banks, if you have these bonds that are now underwater or at least, you know, lower in value, we're gonna let you, we're gonna loan out to you at par. So we're gonna just pretend that it's worth, you know,\" So do you wanna just explain a little bit of that? About that program and how it basically helps kick the can." }, { "speaker": "stephan_livera", "time": "58:18", "start": 3497.59, "text": "Yeah, so it's the same. Okay, so now, that's right. There's so much, there's so much wrong with all this. So what they're saying is that if you're, so you're, you're, the Silicon Valley Bank. Let's take the" }, { "speaker": "stephan", "time": "58:30", "start": 3510.1, "text": "Silicon Valley Bank in this case, yeah." }, { "speaker": "stephan_livera", "time": "58:32", "start": 3511.9, "text": "In this case, and you've got all those bonds that you bought That, that are now underwater because they're worth less in the open market. So instead of being forced to sell them in the open market, the US Treasury's opened a line where you can, you can, you know, place, deposit those treasuries at the, at, at the US Treasury, and they'll give you full par, they'll give you full, you know, face value back for it that you can go, you know, use to- To continue your operations, in, in order to make sure that you get the full value back. But in reality, that's just saying that now, that's just putting more money in the system because the, those, those treasuries shouldn't be worth anything more than what the market is deeming them to be worth. Willing to bet, yeah. Exactly. So by giving them back to the Treasury, the Treasury's then printing money to give you money to go back into the market with, with Full value. So if they were only worth seventy cents on the dollar, but they give you a hundred cents on the dollar, well, that's thirty cents that they just put back into the market, you know?" }, { "speaker": "stephan", "time": "59:41", "start": 3581.01, "text": "Right. And if you make this point, then they'll say, \"Oh, no, they're not printing, they're just loaning. It's just a, it's just a short term loan, right?\"" }, { "speaker": "stephan_livera", "time": "59:47", "start": 3586.71, "text": "Exactly, exactly. And so this is, it's actually incredible. It truly is, it's incredible. And so- Yeah. And, and so it's just allowing, Well, every single road leads to the money printer." }, { "speaker": "stephan", "time": "01:00:05", "start": 3605.28, "text": "Yeah, and I think, and I think that's, that's the point, and I think one other interpretation that I, I think we could put here, or one interpretation we could take here is Look at how popular MMT rhetoric is becoming. Modern Money Tree or Modern Monetary Theory, as they like to call it, that kind of rhetoric is becoming very popular. It used to be a very fringe way of, mode of thinking. It was like this crazy school of thought ten, fifteen years ago. Now all of a sudden, there are some very popular figures promoting this idea, and I think we are slowly but surely stepping in that direction where, okay, at the start they try to maintain this, this facade That the system is legitimate and that, you know, there's this, you know, this Federal Reserve and the private banks are doing the lending and, et cetera, but eventually it's gonna become more and more, you know what? We just, we just need to print. And I think what's gonna happen is situ- the situation gets worse and worse and worse, and it's not-- and I'm not saying it's all gonna blow up tomorrow, right? This is a slow collapse. I think they're gonna eventually get to a stage where they say, \"Look how bad it is," }, { "speaker": "stephan", "time": "01:01:13", "start": 3673.2, "text": "All the while they're going to deny, they're going to say, \"No, we're not monetizing the debt. No, we're not printing. No, no, no, no.\" And eventually the narrative will shift, the urgency, let's say, will be seen as, \"Oh, no, look how bad it will be if we let this fail and that let us print.\"" }, { "speaker": "stephan_livera", "time": "01:01:27", "start": 3687.73, "text": "Yeah, yeah, I think that I, I think you're exactly right. I think it takes a long time, esp-- you know, here in the US it takes a long time for us to get to the point where, we do have a, an all-out, you know, jubilee. But I, I do think that you're exactly right. And so what will happen is we're putting these band-aids, you know, we're plugging these, these holes in the dam, and, and we're just avoiding the reality of the system can't continue to operate like this in perpetuity. That's the reality. You know, and the Fed, the Treasury has admitted as much, and, you know, they put out a chart, and I put it in my tweet thread yesterday, they put out a chart, they, they, I mean, and Lynn Alden, God bless her, she, she's the one who sniffed this out first and alerted me to it, but they put out this chart in this report about their twenty twenty-one fiscal report, and the, you know, the, the, the subtitle of the report was An unsustainable fiscal path, like they know it's unsustainable, and they put out this, this graph, and you can put it up here now, I'll, I'll, I'll give it to you, and, it literally just-- look at how, how it just, it propels straight upwards, and this is even, in my mind, it's optimistic, but it's, it's going in the hundreds and hundreds of, of debt to GDP percentage wise, and it's just, it's ludicrous. So The next time that we have a major event, you know, the next time we have a two thousand eight crisis, or the next time we have a long term capital management crisis, or the next time we have a, you know, a banking crisis, a real one, that they don't step in fast enough, they don't, they don't, you know, eliminate the imminent danger immediately with the printing is going to be breathtaking. You know, it's not gonna be seven trillion dollars, it's gonna be in the twenties. It's gonna be something just Unbelievable. And that, and our debt to GDP isn't gonna be-- our debt isn't gonna be thirty-one trillion dollars. It's gonna be in the fifty, sixty, seventy range. It's gonna be unbelievable. And we just keep saying this, and people aren't listening. People are-- they want to believe the MMT re- rhetoric and believe that it's all, it's gonna be fine, don't worry about it. I'm worried. You know why I'm worried? Because I'm worried for my kids. I'm worried that my kids are gonna wake up in forty years and I've been working my whole life, what do I have to even show for it? They take everything, they take everything, and they bleed it away with inflation, taxes, you know, irresponsible spending They just bleed it away. They just, and, and no matter how hard you work, you know, you're, you're impacted by this money printing, the expansion of the money supply, and inflation, period. So what do you do? Well, I'm buying Bitcoin. I'm buying Bitcoin." }, { "speaker": "stephan", "time": "01:04:27", "start": 3867.6, "text": "Well, yeah, you have to opt out, right? Like, I think it's, it's tough to get people to see because for a lot of people, they seem to think, \"Oh, it's a matter of getting the right leader. Oh, it's a matter of this one new" }, { "speaker": "stephan_livera", "time": "01:04:42", "start": 3882.35, "text": "Yeah. Well, you did, okay. And I'd give this-- I've given this example before, man, when we were-- when I was in college, we're, you know, and afterwards, and, and we were playing hockey, man, we would, we would just kill each other on the ice. I mean, we were just like pounding each other on the ice, right? Hated each other, absolutely vehemently hated each other. Then when the game was over, we'd all go down the street and we'd go to the pub or the bar, and we'd all crowd around" }, { "speaker": "stephan_livera", "time": "01:05:12", "start": 3912.67, "text": "Having beers together because the reality is it's still just a show. It's just a big show. So we're on separate teams, but we're all in the same show, and that's exactly what it's like in Congress, in the Senate, in the White House, in the Fed, in the Treasury. They're all in the same show. It doesn't matter. It's, you, party, po-politics suck all the way around. It doesn't matter. So, yeah, and so you opt out. Well, I hope that we do get some sort of parallel system going here, that, that we do get-- This is my hope. My hope is that, you know, incidents like this, what's going on out in Japan, what happened out in, the UK, it, it wake-- it wakes people up to the fact that we do need an alternate system, an alternative system. Bitcoin Bitcoin is that system, keep growing that network, get a billion people on this, you know, on the Bitcoin network and start using it regularly, using the Lightning Network payment system, storing their value in it, and then you, you're not afraid of an all-out collapse because you, you've got an operating system that you can, you know, move to. And I've talked to Jeff Booth about this quite a bit. And I think that's his hope too, is that, you know, we get this, we get this system up and going and it's parallel, and then people can opt into that and not be devastated from the other one. That's the hope." }, { "speaker": "stephan", "time": "01:06:38", "start": 3998.94, "text": "Yeah. and James, while we're here, I also wanted to chat with you a little bit about the Bitcoin Opportunity Fund. So tell us a little bit about this, as I understand, this is for high net worth investors, and maybe if you could help explain for people, I guess the common question might be, hey, why not I think," }, { "speaker": "stephan_livera", "time": "01:06:56", "start": 4016.79, "text": "I think everybody should own some Bitcoin, period. Like that's the, that's the first step, you should own some Bitcoin, and, you know, and if you don't yet, that's where you should start, quite honestly. and, you know, but as far as the-- Why Bitcoin Opportunity Fund? On top of that, well, I-- The Bitcoin network is, is, is going to grow rapidly, in, in our opinion, okay? So let's step back. First, who is it? It's, it, you know, I've got, a number of partners. It's David Foley, who is Larry Lapard's, longtime partner, in his fund, and, and me are the managing partners. Then we've got Greg Foss Larry Lapard, Mark Moss and, and Corey Klipson from Swan are, were all partners in this, and, but David and I are the, the co-managing partners, so we're, we're, managing the portfolio and, and the day-to-day and the investments, okay? So that's number one. But our, our mission is, and we, we, you know, we, we put together a little statement, and it's basically, i-i-it's the, the Bitcoin Opportunity Fund helps high-net-worth investors who seek- Looking to generate higher risk-adjusted returns, and that's the important part to your question. It helps them generate higher risk-adjusted returns diversifying into the Bitcoin ecosystem by focusing on both public and private opportunities. And so the point is that, you know, we're-- our goal is to deliver Higher risk adjusted returns over a longer, long period of time, you know, seven to ten years, but we're investing only in Bitcoin ecosystem opportunities, and, we are investing both public and private. What's great about this though is that we're-- Look, it's been rough out there with FTX, Celsius, the, the debacles, the, the, the fraud, the, you know, on the mismanagement, the lack of risk management. There, there's been massive, you know- You know," }, { "speaker": "stephan_livera", "time": "01:09:04", "start": 4144.59, "text": "fallout from that this last year. But that puts Bitcoin, who's been, who's been, stung by that contagion, it puts Bitcoin in, in this opportunity set of with distressed companies, the mining companies, some of the smaller, ecosystem companies, payment companies, wallet companies, it puts them in, in, in this position of being distressed, where they don't have the capital to operate that they, that, that they thought they did Or they, they expect it to have, and so they need that capital, that capital injection, and so this is a perfect time for us to come in and get some of these assets, some of these companies, some of these, you know, Series B or, even, some Series A down rounds where they, they have to raise capital at a much, much, much Lower valuation of the company, which means you get more equity for your investment. It's just a good, it's good timing, and, you know, we can help the ecosystem, we can help these companies, we can gather capital and help the, the companies that we believe have strong risk management, have, have strong entrepreneurial s-spirit and, and good leaders. And, you know, with our, with our network, we're pretty excited, we're, we're super excited. And anyway, so anybody who's interested, you can, you can find out more out, you You can find out more information, get more information by going to, Bitcoin Opportunity dot Fund and just, attest that you're accredited and you can see our webinar and, and, and we've got, a tape of it there and you can, you can get some more information, we're happy to talk about it, but, yeah, we're, we're excited, we're excited to do this, so it's a good time." }, { "speaker": "stephan", "time": "01:10:41", "start": 4241.79, "text": "Yeah. Yeah, and, just to touch on the public and private markets aspect, so I presume that could also" }, { "speaker": "stephan", "time": "01:10:51", "start": 4251.48, "text": "And then on the other, on the private side, it could even be some of these, you know, earlier stage Bitcoin companies. So presumably the idea is you believe, you know, let's say you're bullish on this, you know, Bitcoin company, and you think, hey, look, in ten years' time, it's gonna be a big part of the Bitcoin ecosystem, it's gonna be so much bigger, and therefore, let's try to get some now. Yeah. That's basically the, the thesis, right?" }, { "speaker": "stephan_livera", "time": "01:11:13", "start": 4273.42, "text": "That's right. And so, but we kept it wide open For, for that reason, because, you know, the Bitcoin ecosystem is, is, is early stage all the way to later stage. The later stage companies or, or the public ones are mostly miners, right? And so, some payment companies, but, the, the, the things that we could do there is, it's not just buying equity in the market, we could buy- Debt of some of these struggling companies that, that's trading pennies on the dollar, know that they're, even if they're unsecured, they have claims on assets that are big enough that it makes sense to buy the, that debt at these prices. And then what we can do is we can, we can short some of the common equity against it in what we call a delta hedge, and that way we can manage that downside risk. And even if the company goes bankrupt, even if the company goes out of business, we can still make money on that trade. And that's the, that's the idea is for us to, to lower risk with that, with that ability to short. And so that's really important. And then the private side, you know, going back to the miners, we could, we can buy, we can buy miners, the ASICs, for, for a fraction of what they were selling for just a, a year ago. And, we can buy them out of bankruptcy proceedings, and we can get, and we have, strong relationships with power companies and, and places to, to actually plug these in in a way that we're not just buying the power, but we're actually integrated with that, that company in order to align our incentives, and that's important, that, that's to, to protect ourselves from being unplugged or shut down because of, you know, the, the, the pricing opportunity of, of energy. So it's, yeah, again, like I, I think there's a huge opportunity here, we're super excited, that's about all I can really say about it, publicly, but those are the types of things we're looking at, and, and, and we've gotten s- really strong interest and, and excitement around it, so, so, yeah, this is, this is, it's a good time." }, { "speaker": "stephan", "time": "01:13:25", "start": 4405.14, "text": "Fantastic. Okay, cool. So, yeah, I guess, I guess final question, any I guess just looking at the macroeconomics of things, do you think we just sort of, they just try to kick along as much as they, as things can, or do you have any view on whether the Fed really has to do this big about turn and pivot? What are you looking for there?" }, { "speaker": "stephan_livera", "time": "01:13:48", "start": 4428.81, "text": "Well, I think that, they're in a, they're in, in a heck of a pickle, right? that-- 'cause we still have inflation that's running hot. They can't let inflation run out of control, because that would, that would destroy confidence in" }, { "speaker": "stephan_livera", "time": "01:14:05", "start": 4445.04, "text": "Happen. So, they don't have a tool to protect the, the treasury if that happens. However, they do have tools to protect the, the treasury and the dollar if they, if they tighten too much. And that's QE, quantitative easing, printing money, monetizing bonds, injecting liquidity into the markets to, you know, to spark it and to, you know, regenerate some economic activity, and they can lower rates in order to do That, and so those tools allow them, back to the money printer, allow them to do this. So what do I think? I think that the Fed's gonna continue to tighten, I think they're gonna raise, unless something happens between now and next week, they're gonna raise another twenty five basis points, and then I think, if we get at least some positive, movement in the, in the CPI number, which they, they manipulate, we know they do, but if we get it to the point where it looks like it's It's coming down closer to that four or five percent level, then they may just back off and say, okay, now we're at a rate that is above the neutral rate, which means that it, it, it's tightening policy, it's tightening, the screws on the economy. And so if we hold the rates here, the economy will continue to slow. And so that's what, you know, that's what they'll do. However, I think it's, you know, I think they're looking so far in the rearview mirror that we're not even seeing the effects of The, you know, rate raises two, you know, two meetings ago. So we're just now starting to see, the effects of those. And you're gonna start seeing it in the housing market, you're seeing it in jobs, you're seeing it in, in, you know, the, the wages aren't keeping up, so it's going to be, it's, it's gonna be, I think, I think it's gonna be a rough ride, to be honest, through this, the rest of this year, and we're going to hit a When that happens, I don't know. At this point, I'm, I, I would have thought they'll pivot and start lowering rates early twenty twenty-four, but it may be twenty twenty-three now with, with what we've seen in the banking, and, you know, with that, with that pending crisis. And it all depends on what happens next. We're not out of the woods yet on that, you know? We're not quite out of the woods on that, so we're gonna, we're wat-- I'm watching closely, but I'm also, you know, adding opportunistically. Bitcoin goes, i-if it gets crushed and it goes back under twenty thousand, I'm adding, you know, I'm also adding to, to gold and silver just because I'm a risk manager, you know? But I add, I add physical, you know, I, you know, either, either in vaults or in ETFs that, that are audited with the right amount of gold or silver in their vaults. You know, as claims against those ETF certificates. So I just caution people, I think that it's, it's gonna be a rough ride, that's my personal opinion, and that's just the high-- you know, it's all a probabilities game, and I just think there's a higher probability that we go into a recession than there's not. and so, that's, that's, that's kind of my-- that's kind of my outlook right now." }, { "speaker": "stephan", "time": "01:17:22", "start": 4642.17, "text": "Yeah, well, thank you for joining us and, explaining some of these concepts for, for me" }, { "speaker": "stephan_livera", "time": "01:17:30", "start": 4650.85, "text": "Of course, awesome to be here, and always good to talk to you." }, { "speaker": "stephan", "time": "01:17:33", "start": 4653.99, "text": "So I hope you enjoyed the show, and of course, make sure you share this one with family and friends who are in denial about the problems of the fiat monetary system. I hope this episode helps explain some of the key concepts that we as Bitcoiners tend to understand, but are perhaps not being listened to. And I think James has a particularly good way of articulating some of these problems, so this is a great one to share. Get the show notes over at stephanlivera dot com slash four six seven. Thanks," } ] }