U.S. Debt, Data Centers in the Midterms, & Coinbase CEO 8/20/26

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1:13October, November, December, these tend to be good months for Bitcoin. So I think there's a good chance we're on the cusp of the next bull market for spot trading in crypto. Then the data center election. Pollster Frank Luntz on the surprising political issue he says can be understood by the wisdom of Cool Hand Luke. What we have here is a failure to communicate. People who want to build these data centers are not explaining how the populations will benefit. Plus, the rest of today's news, the Fed's family fight, Meg Zitt no more, and Treasury Secretary Scott Besson's surprising bond buyback. Some people think he's Alexander Hamilton and this is genius.

1:53Other people think this is ruinous. It's Thursday, August 20th. Squawk Pod begins right now. Stand to Andrew by in three, two, one. Q Andrew. You're watching Squawk Box right here on CNBC. I'm Andrew Ross Sorkin hanging out with Kelly Evans today. Becky and Joe are off. A lot going on. So much going on. So much. We got to get into all of it. President Trump announcing he's ramping up economic pressure on Iran. In a truth social post, the president called the move an economic D-Day and in his words, quote, the most crushing economic operation ever taken against any country. He said, I am also announcing that any country that allows its financial institutions, businesses, airports or government entities to provide any type of lifeline to Iran will itself face tremendous economic consequences.

2:44Now, Iran's foreign minister rejected the president's threat, calling it a diversion from America's own mounting debt problem and rising interest costs. And the U.S. military has reportedly set up a shipping lane along the coast of Oman and is helping guide oil tankers into and out of the Persian Gulf through the Strait of Hormuz. An Axios report says in recent weeks, 15 to 20 tankers have entered and exited the street each night, bringing about 10 to 20 million barrels of crude oil to the market daily, if you've been wondering, as many of us have, why the oil prices so well behaved during this time.

3:19According to the Axios report, the military has been helping the ships enter the strait in one big line to pick up oil and exit in another big line. Prior to the Iran war, remember, about 20 percent of the world's daily oil supply moved through the Strait of Hormuz, Andrew. It's pretty crazy. Yeah, we are at a pretty crazy time. But that's significant. I mean, that much oil on the market is a big deal. And then there's this. We got to talk about this because this is this is the story. U.S. government debt climbing above 40 trillion dollars. That's according to the Treasury Department. Meanwhile, years of escalating budget deficits, as you know, juiced by government stimulus during covid have caused ever more government red ink.

4:01Ten years ago, public debt was about half of what it is now. U.S. finances are one point eight trillion in the hole so far this year. And then, of course, there is the Besant move about what to do about our debt. And there's so many people who seem to have so many views. Some people who think he's Alexander Hamilton and this is genius. Other people who think that this is ruinous. Right. And I actually am not sure I have come up with a view yet. Well, let's put it this way. If you were in his position, you could understand why he's doing what he's doing, because in some ways his job is to try to keep yields down.

4:38So that's fine. Will it work? Well, and this is the question. I don't know. Not a big reaction in the markets. Famously a trader. That's what he's done. And this is a trade move of sorts. By the way, people have done things like this. You go back in history. It started with Yellen. Well, actually, when I went back and looked, Larry Summers was doing some of this back at the beginning of the century because we were running surpluses. I shouldn't say the beginning of the century, I'd say the beginning of 1990, I want to say, in the 90s. Probably turn of the century. I think that's when we started to see that.

5:14Yeah, I think so. Because we started to see that the deficit was actually getting better and there was a worry about just the liquidity in the market place on the other end. So it is fascinating. Unfortunately, now this is under very different circumstances. And again, when Yellen, if you go back and look, maybe we can quickly show the 10-year yield going back to sort of in the end of 23, maybe the beginning of 24. So maybe they announced it November of 23, they were going to do this. And you saw a drop in the 10 year yield all the way, you know, they implemented it starting in May of the following year.

5:46And yeah, we went from, it made a difference. So then it's been taken up at various times since then. And look again, it's undeniable that by shifting, well, all they're doing is they're going to retire, buy back the longer term debt issue to match the, you know, they're issuing shorter term debt to replace it. That will make us more vulnerable to moves in interest rates. If that's to the downside, great. If it's to the upside. Well, and that's and that's the question. But it seems like in this moment that this is like trading a 30 year mortgage at a decent rate for a five year arm. Yeah, yeah.

6:28Maybe a 90-day arm. That might look better in this moment. But when the arm part starts, things get complicated. This is why those who would defend them, it makes a certain amount of sense. Because from a pure taxpayer trade, fine, fine. It saves money. But if it backfires, because we're papering over the real problems. And I thought the whole point of Warsh's Fed was to let yields go to their long-term kind of resting point in order to force kind of the fiscal discipline. We'll discuss a lot more of this. We've got three more hours of conversation pretty much about this topic. We're basically doing a special on this.

7:11The Fed eyeing possible interest rate hikes as it monitors the price of U.S. goods. This was in the release of the minutes yesterday from the central bank's meeting last month. officials said they would need to raise rates soon unless they saw more progress on bringing down inflation. A summary of the meeting stated that some participants commented that financial conditions might not currently be sufficiently restrictive to facilitate a return of inflation to 2%. The Fed voted 9-3 to keep the federal funds rate steady. The Minutes noted last month's dissenters wanted a quarter percentage point rate hike and said they judged that doing so, quote, would likely help forestall the need for a steeper and potentially more costly sequence of tightening moves at a later stage.

7:53A little color to add to this. You know, I was out at this Aspen Economic Group summit that took place a couple of weeks ago, and there were a whole number of FOMC members there. You might remember Niel Kashkari came on our air, along with a whole bunch of Treasury secretaries as well. And this was right as this had just happened. And you could tell just in the air without giving away sources or what have you, that there was much more dissension on the board than just those three, that there was a lot. there was a much greater view to increase interest rates. And I had been, I was trying to get some of those people to sort of say that on the air.

8:33They wouldn't. But what I'm suggesting is that there seemed to, and I think part of it is that, you know, Kevin Warsh got into this job, has the mandate, public mandate that he's at least discussed publicly. And there's a little bit of a honeymoon period, I think, for him in that there were, I think, some people who might have even been willing or wanting to vote for higher rates last time and felt like, you know. We'll give him another meeting. Well, we're going to wait this out a little bit. So I think it's going to be very interesting to see how quickly things turn. And I think, by the way, they are waiting for the data.

9:09They're all praying for the data to be in a positive direction so they don't have to. Well, he's got pressure on both sides now because the president pushing, again, on lower rates, the rest of the committee may be pushing for higher. Did you see also they might pare back the number of meetings? I'd be curious to talk to our guests about today. But I think from eight to six, like Rebecca Patterson was saying yesterday, as long as it's at least six, they don't need to go to Congress. I do not like fewer Fed meetings. And this is why I want people's point of view on this. But it seems to me that it'd be better to let the funds rate move around a little bit more than to leave it pegged at whatever it's pegged at for a longer period of time.

9:49That's just me. I don't know. Look, my sense of it, and I was sort of actually persuaded at an Aspen about this, is that you could put six on the books and you could always do eight. You could always do nine. But if you have an intermeeting, the bar is so high. Yes, if you have an extra meeting, that's also typically a problem. Yes. Prince Harry and his wife Meghan will return to the UK after spending six years, and that might be significant here in the US. According to published reports, they say the couple's children, Prince Archie and Princess Lilibet, will begin school in Great Britain next month, but that Harry and Meghan won't resume working roles within the royal family.

10:30The couple gave up their royal duties and moved to California more than six years ago as relations with the rest of the royal family soured. Recently, Harry has expressed interest in reconciliation. Guys, there's so much to talk about. We have a lot to... Is it a tax thing? Were they a flop? Were they living above their means? Well, no, the biggest issue, though, the actual biggest issue, has always been about if they return to the UK, whether they'd be entitled to security in the country. And Harry had long fought this. They'd gone to court over the security issue. And the question, which I don't think is fully resolved, or I don't know how it's going to work out when they're there, is whether they're going to have security that's paid for by the government or whether they're going to have to have their own private security.

11:12It's a homecoming, nevertheless. Yes. And by the way, it's going to provide lots of ink for the tabloids there. Endless. They must be drooling. Cheese will be next. So much to come still on Squawk Pod, the latest from the White House. President Trump announces an economic D-Dick for Iran and makes a public show of support for the crypto industry. Coinbase CEO Brian Armstrong was at a key White House meeting about the Clarity Act, the future of which is anything but clear. I'm pretty optimistic it'll get over 60 votes. And I think both sides got 90 percent or so of what they want, which, you know, in any deal I've been a part of that you say yes to that deal.

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13:26You're listening to Squawk Pod from CNBC. Up in, Andrew. Q. President Trump threatening Iran with an economic D-Day. Eamon Javers joins us with the latest on that. Good morning, Eamon. Yeah, good morning to you, Andrew. President Trump declared economic warfare on Iran last night, vowing to wage a financial campaign against the Islamic Republic as he seeks to break that country's efforts to control the Strait of Hormuz. No one has given the Islamic Republic of Iran a greater opportunity, he said, to make a deal than me. Tragically for them, they have failed to take it. Therefore, today I am announcing the most crushing economic operation ever taken against any country.

14:09This will be economic warfare and isolation on an unprecedented scale. Their navy is gone. Their air force is destroyed. Their military factories are now rubble. Their currency is worthless and their country is hanging by a thread. Today, I am also announcing that any country that allows its financial institutions, businesses, airports or government entities to provide any type of lifeline to Iran will itself face tremendous economic consequences. oil smuggling, swap lines, cash transfers, exchange houses, ship registries, front companies. It all needs to stop now. That's the president on social media last night.

14:51Now, the challenge for the president, Andrew, is that Iran already is one of the most heavily sanctioned economies in the world. And it has been for years. And those sanctions have not been enough so far to change the decision making of Iranian leaders. And we saw a response last night from Iran. Iran's foreign minister had this to say overnight on social media. He said, The so-called economic D-Day is a diversion from America's own crisis. Unprecedented debt and surging interest costs doubling down on failed policies will only bring further defeat. An enmity of Iranians. U.S. economic terrorism threatens global economy and sovereignty worldwide.

15:34So, Andrew, some tough words from the Iranians. And in that social media post from the Iranians overnight, they linked to a series of Western media articles about the U.S. soaring debt hitting$40 trillion. So the Iranians are saying, you know, look, if you want to play economic warfare, we can do that, too. And of course, the irony in all of this is that the Iranians have largely been waging an economic warfare campaign against the United States for the duration of this war, choking off the Strait of Hormuz. not really a military or strategic effort. It is an effort to clamp down on the global economy and have economic consequences for the U.S.

16:12Eamon, how much of that link do you think has been made? We just had a bond analyst on the broadcast really talking about interest rates and in particular what Scott Bestin did yesterday in terms of trying to bring down that rate on the long end. And I'm just not sure how much in Washington that conversation is happening, this sort of link between what the war in Iran has done to this economy and how connected these things are. Yeah, I don't think that conversation is happening in Washington, at least not publicly. You know, Washington is pretty good at putting the blinders on, right? And when it comes particularly to the national debt, both parties have continued to spend when they're in power, even if they rail against spending when they're out of power, the history shows that the spending goes up dramatically each term, no matter who's in power.

17:06It's just easier for politicians to spend money and give away goodies to political groups than it is to tighten the reins and disappoint people, right? I mean, if you're a politician, you're campaigning for votes, you don't want to disappoint anybody. The easiest way to do that is to spread the money around. And so as a result, what you don't hear is any real serious effort to deal with the debt and to try to rein in some of these things that are concerning the bond market. The Iran war, you know, a lot of the conversation about the Iran war has been in terms of the depletion of military supplies, missiles and that sort of thing, and some of the impact that the Iranians have had by hitting American supply depots in the Middle East strategically, but not really about the economic cost of this war and whether it's sustainable over the long term.

17:51At some point, though, if there is a pain point, Washington will respond. You know, the benefit of being this big global superpower is that there hasn't been a pain point so far. And so they haven't had to respond at some point. That will be coming if this path, you know, is is sustained and it's going to hurt a lot of people in the bond market, according to our last guest, you know, and that obviously we'll see if that's why we're seeing more pressure come. Eamon, thanks very much for now. Appreciate it. President Trump hosting a group of tech leaders and regulators at the White House yesterday, including our next guest joining us right now from Washington is Coinbase CEO Brian Armstrong.

18:30Brian, it's great to see you. You were standing next to the president yesterday. He talked about a lot of things. I'm curious if there's anything that you picked up that he talked about either with you or the group that we didn't see on TV. Andrew, good to see you. And yeah, I mean, the big topic of conversation both at the live session and in the Oval Office was about clarity. The Clarity Act is coming up for a big vote with the full Senate floor on September 15th. And it represents a lot of bipartisan work. The president was keen to mention that. And thousands of hours from the Senate and the House have gone into getting this to be bipartisan legislation.

19:06It's also a good bill for law enforcement to go protect against illicit activity. It's a good bill for the banks. It gives them 13 new powers to go grow their business. And it's good for the crypto companies. And most importantly, it's good for the 50 million or so Americans who own crypto. And so that's the big opportunity we have now to cement all of these changes that everyone's worked on in this administration and make sure it's durable for many decades into the future. If you were to handicap it at this point, you say it's a winning vote at this point? I'm pretty optimistic it'll get over 60 votes.

19:37And I think both sides got 90 percent or so of what they want, which, you know, in any deal I've been a part of, you say yes to that deal. And like any good negotiation, there's a few last minute things people would want something a little bit more or less. But now it's really good that we have a deadline, September 15th. And I've got to give credit to Leader Thune, who scheduled that. There's a lot of competition for that floor time. There's a lot of competing interests. He would not have scheduled this on September 15th if he didn't think it would pass. You know, one of the other big issues, and I know you've been spending time and meeting with the SEC, as have been others, about the idea of tokenization and really the idea of what kind of exemptions the SEC could potentially put in place to encourage innovation really in the absence of Congress passing any laws.

20:22Yeah, well, you've got to give a lot of credit to Chair Atkins at the SEC and Chair Selig at the CFTC. They have made it very clear that they're going to continue to publish clear guidance and rules under their existing authority, regardless of what happens with the Clarity Act. So I think they're ready to move forward on that. They've actually, even just this week, the SEC put out new rules clarifying for the first time how crypto projects can go raise money in the markets that are security. Is that something that we've been wanting for many years? I think the SEC is working on now an innovation exemption about how crypto securities could be traded in the U.S., which tokenized equities.

21:00Coinbase has been working hard on this, but we've so far only been able to do it offshore outside the U.S. In fact, we're launching our tokenized equities product next week out of Abu Dhabi for non-U.S. But in the U.S., we should be moving in this direction, too. Same thing with single stock equity perps. So there's lots of work that these regulators are doing, and they're going to create clarity regardless of what happens with the Clarity Act itself. So Bitcoin bounced yesterday. Your stock also bounced yesterday. I'm curious how much you think that was a bounce off of the back, effectively, of the meeting that you had, or it was really off of the bounce.

21:38I don't know if it's a bounce, but really in reaction to what Scott Bessent did yesterday. Yeah, well, I think those are both good theories. You know, I'd like to think that people are reading the tea leaves a little bit on a few things regarding the Bitcoin price. You know, one is that we've been in a bear market on spot crypto trading for the last year or so. And if you look at the prior bear markets, they each lasted about, I don't know, 370, 380 days. we're basically coming right up against that where people, you know, they're going to say, well, this one's about over. It's time for the next bull run in crypto.

22:16They're also looking at this September 15th vote for the Clarity Act. And then traditionally, you know, following the Bitcoin halving cycles like October, November, December, these tend to be good months for Bitcoin. So I think there's a good chance we're on the cusp of the next bull market for spot trading in crypto. But what's important is that in this bear market, Coinbase has really diversified its revenue. We're actually only about 12 percent of our revenue now comes from Bitcoin spot trading. The other things that have been growing in this down market for spot trading are things like crypto derivatives, prediction markets, stablecoin payments, tokenization of real world assets like these stocks that I mentioned.

22:52And the big one that's on the horizon is what we call agentic finance or AIFI. That one is just getting started, but I think has potentially the biggest tam because there's going to be more AI agents than humans in not too distant future. And they're all going to have to have an economy to get work done on our behalf. I've got a maybe hard political question for you. This president has been very helpful to the crypto industry. And yet there have been all sorts of questions about the role of this president and the president's family as it relates to crypto. There was an op-ed in The New York Times recently that suggested that much of the conduct may be very well unconstitutional and illegal.

23:30And I'm curious whether you think that that represents a cloud over the industry, whether you would prefer all things being equal, that the that the family not be involved in crypto or maybe you do. Yeah. So this is a complex subject that I know lots of people in the Senate are debating. And, you know, one thing I would say is that the president and the White House have put an ethics offer on the table that could go into the Clarity Act. You know, it requires, I think, moving his funds into a blind trust or there's different variations of that are being negotiated back and forth. But that's pretty unprecedented.

24:07I don't think there's any actually bill prior to this where the president has voluntarily offered something like that to go into the bill. So there's a real offer on the table. There's some things I know the Democrats would like that's even a little stronger. My understanding is that they're going to keep talking and work out some kind of a deal there. But I think the most important thing to recognize is that, yes, the ethics question is big. I'll defer to Congress and the White House and the president on how to solve that. But there's a lot of good stuff in this bill about consumer protection and how to reshore all this back into America.

24:36And so I think everyone kind of realizes the ethics part would be nice to have perfect in everyone's book. But the 90 percent of it, we should not leave the status quo and leave Americans unprotected as a morass of state legislation to operate in the U.S. That's just going to ensure this all goes offshore. And then finally, Brian, you're in Washington today, but I imagine at some point you'll be flying back to Los Angeles, where I believe you live in California. And my question is whether given all of the news and headlines about wealth taxes in California, we've been talking about Ro Khanna almost nonstop the past couple of days and some of the comments that he's made, whether you intend to stay there and what you think of all this.

25:14Yeah, so I think it's really unfortunate what's happening in California. You know, I think we all pay our taxes on gains and our income. and then you have what's yours. And it's pretty unprecedented for someone to say, well, we're actually going to come tax you again and potentially seize your assets. And there's all these questions about how do you even value that? Now, there's one other piece, which if, let's say there was just a higher tax in whatever form it arrives in, and I felt like it was going toward really productive outcomes like, you know, educating people or healthcare. But the challenge is that we're now seeing there's a pretty high amount of fraud and waste and abuse in California.