Has the Debt Spiral Started? | Luke Gromen

29:12he's actually the guy that came up with the term AI safety. So he's very concerned about AI, for one, taking basically every single job in the world. And then on a more extreme example, literally killing humanity. But if we just focus on the first part, which is like, let's say AI is as powerful and is as sort of disruptive in terms of taking jobs as we think it may be. Whether that's three years or 10 years or 20 years, it doesn't really matter. If you assume that all jobs in the world are going to be taken by AI, how do we even manage that? Because, again, I know the Fed is just one small part of this, but if they've got a dual mandate of jobs and inflation, they may as well just forget about one of them.

29:56How are we going to manage moving into this world? I don't know. So I hadn't thought much about AI prior to two years ago, almost three years ago. So May of 2023, I was invited to speak at a conference out in Vancouver where I was on stage with an AI robotics expert and someone who has had a company and whose robots were already being, AI robots were already being tested by major American companies in their warehouses. and these robots are literally you know they would beat you know the best american chess player and they would you know they would literally pick up the strongest nfl linebacker with one hand and throw them across the room and they never need sick days and they never take time off and and and what this person said was that the um the pace that these robots aren't that different than electric cars in terms of the manufacturing process.

31:05They're not very manufacturing intensive, and they'll continue to get better at an exponential rate. And that in their view, you would see what they called autonomous labor. You know, you were already within a few years of it. There was some sort of labor test of like sort of just a basic functional of like your intelligence, your ability to pick up this box, put it over there. It was already approaching this sort of scoring as a human on a basic autonomous labor test. and that once that happened and you make some extrapolations about sort of how technology improves exponentially, you could see fully loaded, fully amortized autonomous AI labor at$5 an hour by like 2035 or 2032.

31:54And I remember sitting there going, oh my God, because I know so when I stepped onto the stage and and it was my turn to speak I came I was talking about just sort of the debt picture and the receipts etc and I said look what he just said is fundamentally incompatible with what we all know as our debt based system right so I was on x the other day and you know one of my one of my friends Tony Nash mentioned, look, you realize that if AI does what Wall Street thinks it's going to do, it's going to take all our jobs. I said, yes. And when it takes all our jobs, we're going to stop paying our mortgages.

32:37We're going to stop paying our car loans. When we stop paying our car loans and our mortgages, banks are going to start to run into trouble. What do the banks hold as their reserves? They hold treasury bonds. What are they going to sell? To offset credit losses due to people stopping paying on their. They're going to sell treasury bonds. So now you're going to have this unemployment rise, wage deflation, interest rates rising. Then what? Like, what do you do as a Fed? Like, that is an emerging market problem. So it's almost, I don't think, I think markets are actually starting to, like, based on conversations I've had, with investors, based on what I'm watching in the markets, I think markets are starting to go, oh, God.

33:27Oh, God. I think they're starting to see that second derivative problem. And as you know, we've been harping on this. I mean, I've been saying it over and over. AI is fundamentally incompatible with a debt-based monetary system. It cannot work. Either it's going to collapse or the Fed's going to have to come in and buy the entire bond market. Yeah, well, when you go through those scenarios, the only thing that it seems like they can do is UBI. There's already jobs that AI is replacing. If you're a computer programmer, there's a group of people that are using AI, making themselves way more productive.

34:04But then there's another group, probably the younger people coming through who are less experienced, that are just being replaced by seasoned developers using AI to develop. And if you're a long-distance truck driver, I can't imagine that job being around in 10 years' time. And they are one of the biggest unions in the country, I think, in America. So there's going to be a lot of political pressure to just give people money. I had a conversation here last night with someone. And I said, listen, AI is already better than all but the top 10 % of developers. I said, wait, wait, say that again? I want to make sure I heard it correctly.

34:42I was at a conference in Vail earlier this year. He said, you can take your phone already. Take a picture of a spot on your skin. It's better reading dermatologists. Do you have skin cancer or not? At that conference, they said, listen, within five to 10 years, top 20 % of dermatologists are still going to have jobs. Bottom 80 % are going to have to find something else to do. There's an article, or there's a hubbub this week about AI actresses. Some AI actresses like reading for scripts and sort of the real actresses are all losing their minds. And it's, I'm not laughing at them. I empathize with it, but it's, I recognize this because my mental model for all of this is what happened to the U.S.

35:24Rust Belt when China went into the WTO. China was the first AI. Everything I'm hearing from people on what AI is going to do to white collar is exactly what I heard from blue collar guys. I used to golf every Saturday. My late father-in-law was a Teamster union official in Cleveland, and his two colleagues that ran other teamster unions around the city, they were like, look, what do we do about this? We know that they're going to be cheaper. We know how this is going to go. What are we supposed to do? And I know how that played out. And the way it played out was private UBI, effectively, as the working class got offshore to China from 2001 to 2005, is what I've called private UBI, which is, hey, we take credit standards down to nil and subprime, right?

36:22So you were making$30 an hour full benefits at Ford, and now you're a$12 an hour greeter at Walmart, no benefits. But Goldman Sachs will write you a subprime loan so you can still buy a car and a house and a bass boat. And your living standards, they don't change from 2003 to 2006 when home prices start to fall, and now you can't refinance it. And then Goldman Sachs gets out of that business. And what ends up happening is, of course, we have a deflationary whoosh, and then all of it ends up in sort of second derivative fashion on the Fed's balance sheet, which goes from$800 billion to$4.7 trillion.

36:57And so I look at this now and go, this is all so familiar. I've seen this before. And we've kind of already done some of the private UBI stuff, right? Credit standards haven't exactly been loose. But yeah, you end up with what do you do? You're going to need some sort of public UBI. Well, what's the quid pro quo to that? Who finances that? Do you just straight money print it? I don't know the answer. And I would tell you, I've gotten indications that leaders have known about this problem for years. That AI, the AI sort of employment slash meaning mismatch is coming. So, yeah, I don't know. This is part of when we let off of like, hey, things are kind of okay right now.

37:58We're on the edge. We're on the edge. And this is technology. So like we can stand here on the edge. And even if we don't take another step, the edge is going to come to us. So I don't have an answer, but it is one of the things that makes me, it makes me very uncomfortable. One of the things that keeps me up at night is the idea of a critical error with my Bitcoin cold storage. This is where AnchorWatch comes in. With AnchorWatch, your Bitcoin is insured with your own A plus rated Lloyds of London insurance policy. and all Bitcoin is held in their time-locked multi-sig bolts. So you have the peace of mind knowing your Bitcoin is fully insured while not giving up custody.

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40:27There really is no better place to buy Bitcoin. So to open an account today, head over to river.com forward slash WBD and earn up to$100 in Bitcoin when you buy. That's river.com forward slash WBD. AI isn't going away. Like it doesn't seem like it's going away. I was even when I was talking to this guy, I used the example of computer engineers. And he was like, they've gone from being computer engineers to being prompt engineers working with AI. But the next harsh realization is that AI is better at prompt engineering than them. It's almost like training. You know, a lot of American engineers would complain about the times in major corporations where they are forced to train their replacement, and then the job goes to India.

41:10Yeah. Like, we've seen this before. And you look at it and go, 1990, biggest employer in America was manufacturing. by far across almost all 50 states. In 2024, in 38 of 50 US states, the biggest employer is healthcare. Now, it's not docs and it's not nurses. It's not practitioners where the growth in jobs has occurred. It's all in administration primarily. And like this, to me, healthcare administration, You talk about a field that is uniquely suited to being disintermediated by AI. You think AI can do billing better than a human? Do you think AI can do reading records better than a human? Filing?

41:58Oh, my gosh. It's not even close. And so then you look at what's American GDP if the biggest employer in 38 of 50 states. And oh, by the way, these jobs tend to be decent jobs. They tend to have benefits. They tend to be the kind of jobs that you can use to buy a house with. This is almost like the failing of the, hey, we're going to get away from manufacturing. We're going to move into a service-based economy because it's higher. It's cleaner. It's less dirty. It's safer. And it's higher paying. And it's higher ROI, higher corporate margins.

42:37I don't have the answer for that. But I can tell you that 30 years of doing what I do and seeing bottlenecks earlier than most people, I'm seeing this and it puts a pit in my stomach. I haven't seen, I haven't felt that since probably, you know, 07, 06, when I look at this and go, oh God, like this, there's no way this works out without some sort of serious disruption. I don't know the answer to that. Like, the things I do know is, you know, there's a great quote by the physicist Albert Bartlett, one of the biggest shortcomings of the human race is the inability to understand the exponential function.

43:21And so, people are going to go, okay, well, this won't be a problem for three or four years. It's not going to be three or four years. It's going to be faster than that. And even still, that's right around the corner. And even that, exactly. It is so soon. And, you know, if it's 18 to 24 months, markets are going to start to care. Your forward thinkers, your forward thinking capital with mandates that allow them to be early, they're going to start caring now, six months. And so then I look at it and go, gold doing what it's doing. You know, gold goes up every day ending in Y. Interesting, right?

43:57One of the things I would probably buy, go buy me some gold. And oh, by the way, like Western investors are so woefully underweighted gold. It's like it's night and fun. They could buy gold every day for the next three years and probably finally get to a market weighting or weighting equal to sort of people in the East. Bitcoin. Because I don't see how you don't end up with some form of UBI, like you're saying. Like, it just is so, and part of that's why I'm so, I usually don't fumble for words per se, but sometimes there's nothing to say. Like, it's so obvious what's about to happen, while Wall Street has sort of right tail extrapolated, hey, look at all this productivity.

44:44Yeah, well, it's like, you're forgetting about, like, maximum productivity, but with no one with a job. I don't know what that means. And the unprecedented thing here is like in those historic examples you've given, there's always something else to pivot into. But if AI is replacing things across the board, like there is no pivot left. And I wonder if things like UBI have to come as almost like reparations from the AI companies.

45:10I don't know. You know, the optimistic view of it, you know, as I can, I've been accused of being a half empty guy on this and other issues, certainly. But once you write tail extrapolate, once you get to that, then in theory, you're going to have the tools for a whole large number of humans to, I'm going to use sort of a, to self-actualize, to whatever that means. You want to educate yourself, create art, create beauty, to create architecture, whatever that might be. You are going to have the tools to do it.

46:01And the levels of disruption that that entails, most humans, that's what I can tell you from the Rust Belt experience. Most people don't want to self-actualize. They just, they want some meaning. They want a good job. They want, you know, a group of friends. They want social connection. They want sort of these fundamental human experiences that are all about to sort of just get tossed up in the air willy-nilly in the name of sort of productivity. You know, and the most productive thing in the world is if there's like one guy working, doing all the work, and the machines are doing it all. And that's, you know, that's, that's, yeah, I don't, you know, the other thing that, you know, and, and, and Jordy Visser has done a lot of, you know, work on this.

46:51I've seen a little bit of his work is really good point. I hadn't thought of it until he brought it up was there's, there's a couple of eighth graders in a garage right now. and they're going to get these AI tools and they're going to disintermediate like, I don't know, some gigantic movie studio or like... That's 100 % going to happen. And, you know, it almost does make you wonder, not necessarily reparations, but just talking through this, there was a period in time in the 80s where, you know, Michael Milken's like, hey, this revolution of junk debt, you know, and he did all the work and he said, look, If you look at junk debt, the premiums that they're paying, the spreads that they're paying relative to the actual default rates make no sense.

47:41So that was sort of the fundamental first principle of what he did was like, we can issue these junk bonds at lower rates because the default experience was lower than what. And then this will allow these companies to get capital, to grow, to drive jobs, et cetera. and early on everyone loved it and it all worked and then they started doing leverage buyouts of like you know the holy grail companies the crown jewels and like the elites are like whoa whoa whoa like you can't take you know this this little upstart firm Drexel letting these smaller raiders like borrow money to buy you know these gigantic crown jewel American corporations and I just wonder if you know we're starting to see symptoms of that type of blowback already right like you know whether it's hollywood you know already with the ai actresses like you know oh these working class people you know you know south park you know they're right they took our jobs thing right like and and south park makes fun of everyone so i don't want to make you know I'm not picking on them per se, but like, you know, when some kid comes up with an AI show that knocks South Park off the air, and I'm not saying that's what's going to happen, but just as an example, you know, like the Dirk or Dirk meme will have come full circle.

49:06And there's going to be a pushback from sort of the powers that be at some point, right? Of like, and I don't know. It's what does that look like? Like, you know, whether that, you know, look, if these eighth graders in a garage start disintermediating Fortune 100 companies and people's 401ks, you know, now in theory, they'll switch. But like there's a massive wealth transfer away from, you know, like a proxy of, you know, for example, might be what we've seen with Bitcoin, right? Like, you know, it's like, ha, ha, ha, those Bitcoiners are crazy. And all of a sudden, like four years later, holy cow, they're like a political force.

49:44Why? Because they have money. Why do they have money? because they're holding a better money. And they're a political force now. Literally, the government's talking about it. Not just talking about it. It is part of, at least tangentially, a design to try to help finance deficits, right? So the same kind of thing. I don't have an answer. I'm kind of talking through it. It's a fascinating question. It is. And I've got loads of other stuff I want to talk to you about. Sure. But just quickly, last thing on the AI thing. You brought up before in terms of meaning. If everyone loses their jobs, what are they kind of here for?

50:22And Roman Jampolski, the AI guy who I spoke to, calls this like the icky guy risk. It's like, what do people do when they have lost their job? They've lost their meaning. They have to kind of start again and think about what they want to do. And the sort of doomer in me thinks people are just going to sit inside, drink at 10 a.m. and play video games. And I'm like, what does that do for society? It's really scary. I can tell you this exactly what's going to happen because I've lived it. I've seen it. Look, in 1992, in my hometown, it's town square in my hometown, Strongsville, Ohio. We had late October, so right before the presidential election of 1992, we had President George Bush.

51:07Bruce Willis was there. everyone in the area was there to see it right that's how important that region was in terms of swing states how vibrant 2016 i guess six presidential elections later right for 24 years on the same day that hillary clinton said you know i disagree with donald trump's dark version of america america is still great literally less than a mile from where President Bush had stood and given a speech, somebody walked in to an upscale brewery with an AK-47 and held it up at assault rifle point with his buddy with a pistol and locked the people into the freezer and made off with the money.

51:58and you know from drug overdoses being nothing in that region you know and when i say that region i mean you know from 1992 drug overdoses in the midwest rust belt tail from 2008 through

52:172022 nearly a million americans died of drug overdoses insane when you then factor in suicides and alcoholism-related deaths into a basket that Case and Deaton, in their study called Deaths of Economic Hopelessness, in the Wall Street Journal, you were seeing death rates in those parts of the world that were rivaling the death rates seen in post-Soviet Russia in the 1990s. Which, another example, you lose meaning, what do you do? You drink yourself to death, you use drugs, So you go back in time, I have a friend of mine who's a Native American, Plains Native American elder. When they lost their meaning, when they started being fenced in, so to speak, right?

53:07What did they do? They drank themselves to death. So the history is very clear. There's no mystery, in my opinion, when you take the meaning of people away, what they're going to do. And yeah, to your point, it is very troubling. I don't, you know, it's one of these things where it's, I don't, I know how it's going to go. And it makes me sad. And I think the thing that's sort of like some of the division in this country is New York City, there have been winners and losers, as there are in any period of time. But over the last 20 years of this globalization, there have been very clear winners and losers.

53:55And the winners have been very isolated, by and large, from exactly what I'm describing, certainly at the scale. they're not going to be isolated from this they're going to witness it for the first time and that kind of goes back to the point of like you know they have more political power than sort of you know the people in in the rust belt nobody cares about the rust belt uh they care about manhattan when it comes to manhattan when and oh by the way guess guess how they're going to react to it politically they're going to elect you know the mundanis of the world yeah right 100 and that's not going to make it better.

54:30It's going to make things trickier. So there are second derivative impacts of this AI thing that are simply not being thought through. And I don't know that it's been released, right? It's a virus. You can't stop it now. You've sowed the wind, now you're going to reap the whirlwind. For good or for worse, it's out there now. It reminds me of the line in The Big Short. It's Brad Pitt's character. I don't actually know if this is factually true, but it's in the film. He says, for every 1 % unemployment goes up, 40 ,000 people die. And if unemployment goes up to 60%, 70%, 80%, then I don't know, it's scary.

55:10It is, right? It's just like, just stop fucking dancing, right? Yeah. Yeah, it's one of these things where you go, I don't know. I mean, to me, it's all about this. Like, you've got to, but what's coming, good or bad? Like it is, if this all goes well, it's going to be disruptive and, you know, everyone can be flexible. Great. You got to be mentally tough. And if it goes how it's gone historically, you got to be really mentally tough because it's going to be, these effects are going to happen. When you take away the meaning of people and mass, we know how it goes. There is no mystery to this. And anyone that says otherwise is lying.

55:53let's go from one slightly Duma topic to another one of the most interesting things that I've read of your work recently and I've not really seen anyone else talk about this is what's happening in the Middle East so you wrote about after Israel bombed Qatar Qatar moving more towards China and kind of the implications on the petrodollar system can you explain what's happening there? I can illuminate on what I'm hearing, which is that in the Middle East, that was seen as a bridge too far. That essentially, it was almost like a red wedding kind of thing, where they were invited under certain one auspice and then bombed.

56:39And in a city that is, you know, I've never been, but I'm told it is very much like a Geneva or it's sort of a beautiful city with kind of seen as like a neutral, you know, everyone leaves their swords at the door and comes in and negotiates in good faith and then leaves. And this was seen as a violation of good faith in certain circles is what I hear. And it was tricky as well for the United States because, you know, the first story was, well, we didn't know ahead of time. And then we, which is not a good look for us, by the way, right? Because we are, you know, we're the empire and we're being filled in on things after the fact.

57:21It's not a good look for the administration. Is this when Trump said they don't know what the fuck they're doing? Was that in response to this? I can't actually. It might have been. I don't know. I don't know. But I think it was not a coincidence that shortly thereafter, the Pakistanis and the The Qataris did or no, excuse me, Pakistanis and the Saudis did a mutual defense agreement. Well, Pakistan is a nuclear powered country, a nuclear armed country. They are a longtime close ally of China. And so to me, you can make the case that the Saudis just went under a nuclear umbrella of China of sorts, which I think is really interesting because people say, well, there'll never be any change to the petrodollar system, et cetera, because, well, Russia showed you can make change to the petrodollar system if you have nuclear weapons.

58:37That was the lesson of Saddam. That was the lesson of Gaddafi.

58:43And so viewed through this lens, I'm not saying it's the right lens, but I think it's a lens worth considering, is that, look, the Pakistanis have deals with the Chinese. Pakistanis now a mutual aid agreement with the Saudis. The Saudis don't have nuclear weapons, technically. Hey, we don't have nuclear weapons. We're abiding by everything. You describe this as nuclear umbrella as a service, though. It's a nuclear umbrella as a service. Exactly. You know, and if, hey, if the Chinese bleeds certain missile technology to the Pakistanis who then use it or transfer it over to the Saudis, you know, that's oops.

59:19So I just saw it as the whole daisy chain sequence, particularly in the context of what transpired in June when the Israelis attacked Iran while we were negotiating still in theory.

59:39and the you know it came out that the the israelis were running short of air defense missiles within like 10 days and the u.s had burned down 10 50 or 10 15 percent of its high-end air defense missiles helping defend israel within like 10 days of medium intensity combat, not high intensity, just medium intensity combat. To me, my overall takeaway is that

1:00:09the unilateral advantage that we have enjoyed in that region, we, the United States, have enjoyed in that region, seems to be gone. And if it's gone, then you're moving towards a more multipolar balance. And in that case, to me, you're going to end up with changes to the system, multi-currency energy pricing, maybe even by parties that have historically only priced in dollars, more settlement in things like gold of energy surpluses at the central bank level, because it's just another example, right? It was another violation of trust. When we grabbed Russia's FX reserves, I think Yanis Varoufakis, a former Greek finance minister, said it privately.

1:00:57He said, I'm not saying they should or they shouldn't have done it, but they did it. And when they did it, OK, then people say, fine, we're going to start buying a lot more gold rather than treasuries. And that's what's happened. And in the same way, I think this was seen in the Middle East as a violation of trust of sorts and a view of, well, OK, well, then we need to start making alternative arrangements or even just threatening alternative arrangements. And it's one of these things, I think once you see it, you can't unsee it. And so I think it's more of sort of a move towards multipolarity that this move by the Israelis bombing Doha seems to have engendered.

1:01:39And to put it into context, if this does kind of break down the trust in the Middle East, if the petrodollar system unwinds to a degree where not all oil is going to be priced in the US dollar, That's a potential future you see. What does that actually mean for the US bond market? That's a big question. I think there's only one currency that can replace the dollar on that as an oil currency, and it's gold. And so I think it's noteworthy that the gold-to-oil ratio has gone from 55 to 65 in a month since the Israelis did that.

1:02:20What does it mean for the bond market? I mean, it ultimately, I think, just further accelerates a trend we've already seen, which is, as we have seen the marginal oil barrel priced outside the dollar over the last 10 years, you're going to see more of the marginal oil barrel priced outside the U.S. dollar. There was an article yesterday on Reuters that India is buying oil from Russia and Chinese yuan. Like, Iran and India and China are very big oil buyers. They're 35 % of the world's population, right? They're both buying oil outside the dollar now. Like, the petrodollar has been, like, it's like, you know, it's like breaking, putting a hole in an airframe at altitude, right?

1:03:08Like, it doesn't take a really big hole for you to lose pressure and start to have bad consequences. And I think that's, what does it mean? I think it ultimately means that the U.S. would have to either significantly shrink deficits, which it can't because the debt's too high and the government spending its percentage GDP is too high. And so until you devalue the debt, you can't shrink your deficits without going into a debt spiral that we touched about earlier. Or ultimately, you're going to have to run hotter. You're going to have to inflate away debt. You're going to have to nominally grow.

1:03:44You're going to have to invest. And so to me, I think ultimately, what does it mean? It just means the real value of treasury bonds. And I would, as a proxy for that, I'd look at GLD over TLT, right? The GLD ETF, the gold ETF over TLT, long bond ETF, which is going vertical now. The gold is crushing long treasuries. I think it's going to accelerate. It doesn't necessarily mean that the price of treasuries in a vacuum has to crash because there's a number of different levers. But I just think the real value of the treasury market will deteriorate more and perhaps faster as a result of that. So one of the reasons I ask that is, obviously, this administration has been very open to stablecoins.

1:04:32And I wondered if they can try and plug some of the hole in the demand side of the treasury issuance through stablecoins, through the proliferation of stablecoins, and trying to spread those basically as far and wide as they possibly can. I think that's the plan. I think ultimately— Has that become the almost new petrodollar system? Yes, is the short version. I think that's the goal. I think that's what they would like to have happen. Can it work? I think, number one, let's call it what it really is. We can't issue long-term bonds anymore at rates that we can afford that don't blow up our existing debt and put us into a debt spiral.

1:05:14So we are going to let stablecoins, which are near-cash equivalents, proliferate.

1:05:26translation we are going to finance our deficit in near cash markets we're running a seven percent deficit we're going to finance it near cash markets um now stable coins that you know stable coins yield zero um you know short-term rates in the u.s still whatever four ish um I wouldn't be surprised at all if the administration, you know, if this is successful, if you don't get Besant to come out in some sort of, you know, non-transferable or non-redeemable T-bills into the stablecoin market. Which is to say everything in a stable coin is non-redeemable, and they're not going to yield four. They're going to yield 30 basis points.

1:06:19And he will have reduced the deficit from seven to, once you have enough of the bonds in there, from seven to four like that. Because so much, whatever, a trillion and a half of the deficit on a gross basis is interest. And if you finance enough of it, the math is oversimplified. simplified. But again, let's not lose sight of what we're doing here. And by the way, when you take rates from four to 30 basis points, now it's really like, it is like that far from financing in cash markets. 30 basis point, three month T-bill and cash, you're like kissing cousins. Basically the same thing. They're the same thing.

1:06:59And again, this is what has to happen. This is not, I'm not trying to reflect badly on the Trump administration, best in any. This was in the cake. When you do dumb stuff with borrowed money for 40 years and you follow an economic dogma of globalism and neoliberalism the way we have done so for 40 years to such an extreme with no balance, you eventually get to this point. And you could take it even broader and say, this is how fiat like this is what you do. Fiat currency systems end up financing in cash markets. and then the inflation inflates away the debt. This is what they're talking about doing.

1:07:37The stablecoin aspect and the sort of new petrodollar side of it is essentially taking the Europeans' heads. We're barely keeping our heads above water and debt and basically taking the Europeans and so the rest of the world, shoving them underwater and standing on them and be like, okay, we're okay now. And we would be for like a bit. But to me, I think it's super important for investors there's a great someone said it to me once said wisdom is calling things what they are or seeing things for what they are not for what they're called and so stable coins new petrodollar all you know dollar wrecking ball all this stuff like they're financing deficits in near cash markets because they can't issue enough bonds at the long end at rates that don't blow up the debt And as an investor, once you understand that, you're like, oh, you can get enraged about it or whatever.

1:08:30I know what to do with that. I absolutely know what to do with that. There's a guy, a friend of mine called Mark Goodwin, who wrote a book called The Bitcoin Dollar in sort of 2021. And he called this back then. And it seems like that book is playing out exactly as he wrote it. But if for anyone listening who is like, holy shit, what do I do? I mean, we know Bitcoin's the answer. You talk about gold a lot. It's funny because the first time you were on the show, I was having a look. It was five years ago. And you were sort of interested in Bitcoin, but you were still a little bit hands off. And now when I read your pieces, every one of them finishes with buy gold and Bitcoin.

1:09:06So is the answer literally as simple as that? The way things have evolved, the average person should probably have, in my opinion, 20 % of their liquid net worth in some combination of gold and Bitcoin, depending on their risk tolerance, age, proximity to retirement, et cetera. Because obviously, I think over time, all else equal, Bitcoin probably wins relative to gold.

1:09:41But there's ways maybe it wouldn't, but let's set those aside. But then, you know, but Bitcoin in the meantime has been proven to be far more volatile. And that matters for the average investor. So, but yeah, I mean, the way things have evolved and the way things are evolving with AI, especially, right? Because we can just talk about the debt side and you're like, okay, you know, we can see what they're doing. But AI is accelerating this. Like, that's the tricky part around, like you can see, you know, interest never sleeps, right? It's a compounding interest. It's the eighth wonder of the world.

1:10:12It's just going up and up and up. And that's, you know, why they are having to issue more of the shift, more of the debt into, you know, it's why, you know, Besson came in and he doubled the run rate of Treasury buybacks that Yellen was doing. Like, and mostly shifting from long end to short end. Like, it is what it is. I would be doing the same thing. He's not a bad person for doing it. Math is a math. And it's the stuff he said he didn't want to do. It was the stuff he didn't want to do. Yeah. You know what? I want to go play in the NFL. I don't want to fly commercial. You know, sorry. Yeah.

1:10:43The math is the math.

1:10:48And when you look at the math as a math and then you overlay the stuff we're talking about with AI, that's the really tricky part where we've got exponential functions in two different directions happening. And that means it's going to happen like way, way faster than we think. Will a stable coin thing work? Maybe. I don't know. um they i mean he needs to get you know he needs to get trillions into stable coins where is he at today 300 billion 400 billion like he's it's not happening fast enough he needs to be at like 2 trillion by like mid next year um and that has implications right because that means he's got to issue the state the t-bills and the stable coins got to get issued and those are like you got to And oh, by the way, one of the provisions of the Genius Act is that the banks can use reserves to back stablecoins.

1:11:44Well, the whole reason QE wasn't like wildly inflationary, you know, and I and lots of other people, and this was pre-FFTT, I was just, you know, sales guy on a desk. I thought it would be. But then as you read up and as time has gone on, it hasn't been as inflationary as feared, not by Whitechart, because essentially so much of it was sterilized in bank reserves. Banks were paid a bribe by the Fed to basically take the money they gave them in QE and just hold it. If stable coins start being used in day-to-day life as banks are issuing them back by reserves, you're mobilizing trillions in reserves.

1:12:23And now just ascribe a modest money multiplier to that. All the QE inflation that was feared and never arrived. He's come in. Like a freight train, as our friend Lynn would say. So like, and again, this was always in the cake. There is no, like the math is the math. And that's why I say the events, like you need to protect yourself. Like this, you know, we all enjoyed the party, you know, whether we voted for it or not. Right. You know, boomers and silent generation are getting 70 percent of record tax receipts and entitlements. And yes, they did pay into that. They didn't pay that much for it all.

1:13:09You know, there's been inflation of services, et cetera. They're taking out more than they put in. That's why it doesn't are what they are. And oh, by the way, our politicians spent their money as they put it in. They're spending our money. So, yeah, I mean, it's somewhat cliche, like, yeah, you need to own gold and Bitcoin, but like you need to own gold and Bitcoin. We're in that part of the cycle. It just is what it is. And I hope, you know, after it's over, then, you know, I can leave a note in my will for my grandkids or great grandkids and say, listen, there's going to come a time around, you know, 2085.

1:13:43And you're going to, you know, you're going to want to start buying some gold again. And I'll be done with it for the rest of my life. You know, it's just, it's the arc. You know, that's all it is. You know, gold and Bitcoin is just the arc to get you through this monetary storm, this monetary flood.

1:14:01And I write about it a lot more because that's what's, you know, that's what's happening. It's accelerating. Like, you know, the water's up to my knees and I'm still coming in. It's like, well, okay, get busy building the arc faster. It's funny though. It seems like the world is now waking up to this. JP Morgan came out with their debasement trade. The only thing that I'm not sure about with that is if it's even a trade, because that assumes you get out of it at some point. Is there a world where you do see selling your gold? Sure. When does that time come? For me, gold specifically, I look at it as what's the price of the dollar, right, ultimately.

1:14:41So one of the metrics, as you know, I've published a number of times, is the market value of U.S. official gold relative to the foreign-held portion of U.S. Treasuries. And with this magnificent gold rally that we've had, that ratio is 11%. In other words, if at market price, all U.S. official gold, if we have it, I'm assuming we do, collateralizes our foreign debt at 11%. In 1989, that was 20 % as the Berlin Wall came down. We went into our unipolar moment. It bottomed at like 6%. The long-term average is 40%. So gold would have to rise nearly 2x from here just to get to the 1989 level. So it would need to rise nearly 4x to get to the long-term average.

1:15:30And if we had an honest-to-goodness dollar crisis like we did in 79-80, that was a dollar crisis. And gold was at the foreign, the market value of U.S. official gold was 135 % of our foreign held debt. In other words, foreigners could have showed up with their treasuries and said, give us gold. And the U.S. still would have had a third of its gold left over after they had extinguished all foreign debt of the United States. That was a gold bubble. We had 135 % backed foreign debt. Today, it's 11. And things are not getting better. They're getting worse. And oh, by the way, in 1980, 30 % that the GDP, 2 % fiscal deficit, entitlements were nil.

1:16:10We still had an industrial base. Things were great. And they had the ability to raise rates to 15 % to defend the dollar. We can't raise rates. They tried to raise rates to four to defend the dollar, and everything went pear-shaped. All of a sudden, they're doing BTFP and this and that and what have you. So there's no ability to raise rates to defend the dollar. It's all going to have to. So the answer to the question is, it's 11 % of foreign held debt today. I don't know. The very earliest I would think about selling any gold would be that 20 % number, but it's dependent on events. If we're seeing things evolve such that there's actually a path forward to fiscal austerity versus just run it hot, okay, maybe 20 % is a number.

1:16:53More likely, I probably wouldn't even consider until 40%. 40%, that gets you, what is that,$16 ,000 gold,$15 ,000 gold? I would probably take some out there. Maybe I would lend some to the federal government at 4%, at$15 ,000 gold. Or maybe I'd buy some farmland at that point or something, some other more productive asset. But it's about the price of the dollar in real money terms, in gold terms. Bitcoin, I think, is a newer asset. I think it's going to be more volatile.

1:17:28You know, for me, it's all about what's the price of the dollar, what's happening. And with Bitcoin, there's also a geopolitical hedge, right? And I never thought, look, I'm not going anywhere. I'm staying here. Like, I love this country. I was born and raised here. I'm an Eagle Scout. Like, I'm not leaving, right, for the meme. I'm not leaving. I'm not fucking leaving. But it does give you some optionality for periods of time, right? Like, you know, in a way that gold doesn't simply because, you know, it's hard to fly somewhere with any real amount of gold. It's really easy to fly anywhere with enormous amounts of Bitcoin.

1:18:12Or it's really easy to send, you know, Bitcoin over a Zoom call to friends, family, et cetera, around the country in a way that is just impossible with gold. So for me, it's all about multi, what's the valuation of the dollar sort of relative to these assets? And what am I watching? What am I seeing? Like, are things getting better? Are things getting worse? What's the political? And unfortunately, sort of across the board, a lot of the metrics, I think I wrote it a couple weeks ago, like two weeks ago. I'm still buying gold and Bitcoin every week because, you know, the other side of that is when do I want to buy dollars relative to gold and Bitcoin?

1:18:57You know, hey, it's Friday. Do I want to buy gold? You know, I want to buy dollars and sell gold and Bitcoin. No, based on what I'm saying, no, not yet. So I'd have to start seeing that. And I think the prices are way higher before that balance is in my own mind. Yeah, I think that's probably the perfect place to close out, Luke. I've really enjoyed this. I think we should close the show how you close every article. Buy gold and Bitcoin. Buy Bitcoin first, though. Where do you want to send anyone who's want to hear more about you? Sure. Thank you. If you're interested in hearing more about our different research products, fftt-llc.com for more information.

1:19:32And as you know, I'm on the... I almost called it the tweeter, which is... I'm on exit at Luke Groman. L-U-K-E-G-R-O-M-E-N. Love it. Thank you for this, Luke. This has been great. Thanks for having me on. A fun few days ahead of us. Absolutely. Let's go. Absolutely. Thanks, man.