Inevitable Money Printing Will Drive A “Debt Doom Loop” | Arthur Hayes

Transcript

Introduction

It's gonna be very difficult for the government to politically expropriate assets from those who are in power already to essentially allow everyone to live this utopian lifestyle because of AI. Then what do you do? You just print a ton of money and hand everybody out and then keep the capital structure the same. By law, the Fed is allowed to print infinite amounts of money to make sure the government can afford to borrow. And so why not do it now? If I had to bet, I bet on the government not wanting to rock the boat and they're just going to print the money. This episode is brought to you by Vanex Semiconductor ETFs. You'll hear more about the VANX Semiconductor ETF, ticker SMH, the largest semiconductor ETF, and its newer VANC fab semiconductor ETF, ticker SMHX, later in the show.

Blockworks Digital Asset Summit, crypto's premier institutional event, is back in London this October 13th to 15th. You've got top speakers from Black Rockck, Circle, Coinbase, the UK Parliament, and Athena, all under one roof. I'll be there as well, hosting a live forward guidance episode with Quinn and a few others. So, if you want to see us record in the flesh, or meet some of the other legends on the Ford Guidance community, this is your shot. Notable macro names like Michael Howell of Crossber Capital and Jeff Park are already confirmed with more coming. There's also a VIP dinner on the 13th that will sell out fast. That's for speakers and VIP ticket holders only.

It's at Old Billings Gate in London. Use code Ford 100 for 100 pounds off. See you there. Nothing said on for guidance. Is a recommendation to buy or sell any investments or products. This podcast is forformational purposes only and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Blockworks. Our hosts, guests, and the Blockworks team may hold positions in the company's funds or projects discussed. >> Please welcome Arthur, Hayes, and Felix up to the stage.

>> Awesome. Um, like you said, my name is Felix. I'm the host of the Ford Guidance podcast over at Block Works, which looks at all things at the intersection of macro and crypto. So, no better guest to represent that than Arthur Hayes. >> Hello. >> Hey. Hey. Good to have you. um you are fresh off you just released a new essay and I thought what's the best way to structure this conversation and I love the way that your essays which you become quite well known for among endless other things um is starting off with your highle macro theme and then it always ends with how does that translate into crypto how does that translate into all coins so let's let's walk through that and start off with what is your highle macro framework you wrote this new essay called 47 I believe it was called um give the high level of that,

what's going on there? >> Yeah. So, the high level is how does Trump and his boy Besson, Buffalo Bill Besson, get from where they are today, where he controls the Treasury to, you know, where they need to go, which is the Treasury and the the central bank, the US Federal Reserve are working together to print money to accomplish their economic policies. And so this is an essay basically talking about the minutia of like how votes happen and how many people you need to have on which board to do what things and you know this bureaucratic quagmire that Trump is going to try to pack his people on there so that he gets the policies that he wants.

Money Printing & Yield Curve Control

>> Got it. And yeah, let's double click a little bit deeper into this. You mentioned this idea of yield curve control in it and just a fancy way of saying obscene money printing effectively. um how do you discount the probability of that occurring over the next couple years and how do you see that progression actually going from where we are today to that endgame? >> So I mean if you listen to the rhetoric from both people you know besting wrote an oped in in the Wall Street Journal about the Fed's policy if you listen to Trump and all of his lieutenants and what's the big thing that they care about? Well, they're really pissed off that the US can't go and bomb everybody that they want to bomb without impunity because they don't have any bombs. So they want to build more bombs and so

they need to have more companies building real things and not just you know MBAs doing LBOs's in New York and so they need to print money and revitalize the American uh industry. Now it's not that easy to do and this is what they did during the war and World War II, right? They fixed the yield curve and I in in the essay I had a chart of the yield curve from 1942 to 1951 and the T bill rate was fixed at 0.67 0.675% like less than 1%. And then 10-year bonds forward were 2 and a.5%. And so this was a yield curve that was very steep. could enable the like a you know

a commercial bank to lend borrow from depositors cheaply, lend long uh lend money to relevant industries to you know juice supply and provide credit and you know politicians are not very imaginative they oh well it worked during the war then why can't it work now and that's essentially what they're saying you even if you listen to recent um Fed board member Steven Moran he talks about the Fed's third mandate and you know relevant interesting people on Twitter po, you know, posted the the quote from the the actual Federal Reserve Act of 1913 and it basically said the Fed is responsible for ensuring a moderate rate of government interest on its bonds. What does moderate mean?

Whatever the politicians want it to mean. And so, you know, by law, the Fed is allowed to print infinite amounts of money to make sure the government can afford to borrow. And so, why not do it now? >> Yeah. So, this well two themes. one which is this risk of central bank and Fed independence being eroded and printing a ton of money which is increasingly likely over the next while lowering a Fed funds interest rate more so than what you would probably anticipate based on like how much inflation we have right now and where the economy is at you put those two themes together I would think okay well Bitcoin is made for this we should be absolutely ripping and roaring right now I mean gold is equities are but the crypto market's been stagnating a little

What Does this Mean for Bitcoin?

bit what's your read on what's going on there. Do you think it's just a lag thing? And I've seen some analysis where it's often like gold runs first and then Bitcoin follows. How do you think about all of that? >> I think it really depends on when you bought your Bitcoin in terms of whether you think this is a bull market or not, right? If you bought a bunch of Bitcoin in like, you know, 2015, 2013, even like 2020, you're like, "Yeah, this is great. It's a bull market." Bitcoin is outperformed gold. It's outperformed stocks. It's outperformed real estate. But if you're like, "Oh, wow. They started they were printing more money starting in March this year or April and I bought Bitcoin at like 95 or 100 or whatever thousand dollars and it's only up 105%.

And I feel like a you know a jackass because I was supposed to be the best performing asset. Well wait a bit. So I I think the premise of that question is a bit flawed because Bitcoin is the best performing asset ever you know to respond to money debasement. You go back to World War II and if you think about around the world, where could you invested your fiat dollars or euros or whatever currency if you wanted to escape, right? If you think about the United States, gold was illegal. Couldn't buy gold. Um, you could only buy stocks, uh, S&P 500 or whatever the stocks were at the time. If you were in Europe, you were probably blown up.

Couldn't buy anything or the Germans were taking your gold. If you're in the UK, gold was banned. Couldn't buy gold. Stock market was a piece of because they were getting bombed, so you couldn't do that. If you were in Asia, the Japanese were taking all your so you didn't have anything either. So, you know, we can't really, we don't have an analog to what we could have bought back in World War II because there just weren't that many assets. But today, we have a stock market globally, you know, relevant countries. You have gold. It's a bit clunky, but you can still buy it. And you have Bitcoin. And we've seen what's happened since 2008 in terms of the price performance of Bitcoin, gold, and stocks. And they've done very, very well. Bitcoin being the best. So, I think that you just have to wait a bit.

Um, one of the key premises underlying a lot of the essays that you write about is effectively I would call this inevitable debt doom loop that most fiat currencies and just fiat economies are basically destined for. And one of the big macro questions at hand that I think ties in nicely to the conference we're at here at the origin summit, which is these ideas of technological innovation, AI, and just this inevitable productivity boom that's potential. So there's a lot of questions at hand which is is this the saving grace that can get us out of this debt doom loop or is it just something that just won't quite move the market enough to really solve the debt issues. So yeah, how do you think about these AI technological

innovations? Is it something that can actually save us from this dead doom loop of fiat currencies? Breakthroughs begin with semiconductors. With over $23 billion in assets under management, the VANX Semiconductor ETF, ticker SMH, is not only the largest semiconductor ETF, but it has also outperformed the next largest semiconductor ETF. It is built on an intelligently designed and constrained index that includes the whole sector stack from design to manufacturing. Historically, this unique construction and methodology have helped SMH outperform its closest ETF competitor. Check out the table below.

VanEck Ad

Go to van.com/smhelix to learn more. As always, investments in blockchain technology involve risk terms and conditions apply. Do your own research. >> I think that's a political choice in terms of what do we are we going to share as humans, right? So imagine that AI was as effective as Sam Holman says it is. It is not obviously. And all of a sudden 90% of the jobs are gone and like, oh great, wow, everyone's super productive. you know, we can go and just, you know, I don't know, jack off all day, whatever the you're going to do. Uh, and and and so, but you have a you had you you had this thing called a mortgage and a car payment and you had this thing

AI & the Debt Doom Loop

called rent and you don't have a job anymore. And so, the question is, okay, well, is the government going to mandate that private profits must go to the populace because now everyone's so productive? But then who the people who own those companies are, well, hold on a second. You know, I'm Facebook. I just dropped a trillion dollars in capex. I want my returns. Why am I now giving, you know, universal basic income to all these who weren't investing u while this AI thing was happening? I don't want to share. Um, so then, okay, well then what are you going to do about that? Are you going to just take away private profits and distribute them to people? I don't know. Again, that's a political question depending on where you're based. or you were

fortunate enough to have financial assets and you invested in crypto or AI or or whatever and you've done very very well and then there's all these people who weren't in your case you believe you were smarter than them or better than them because you've have more money whether or not that's true are you going to share oh let's put a 99% tax rate on all capital g dividends so that everyone else can share in this amazing AI revolution and productivity boom do you want to share probably not and so I think then the question is, okay, well, it's going to be very difficult for the the same. And so either you have a

massive deflationary event and asset holders are completely wiped out or you have a massive inflationary event which continues the same social structure but then the asset holders feel like they've gotten something out of a return for their precient investing behavior. Again, a political choice. I don't know. But if I had to bet, I bet on the government not wanting to rock the boat and they're just going to print the money to uh, you know, paper over this big boom and then maybe we decide to share as humans in this AI uh, and this new ecosystem. So it could be a completely, you know, riskoff event which everything's worth zero or it could be a risk event where everything's worth infinity and I don't know what that is. Do you underwrite the probability of that political decision

the same between say the US and Asia and specifically like Korea where we hear now? Like I know you're a big fan of Asia. You live in Asia. We're here in Korea, but you write a lot about the US and there's a yeah, there's a lot of that inherent cynicism around yeah, we're just going to, you know, print a ton of money and and throw it away and that sort of like. So yeah, do you view that as an even probability of governments to resort to that or how do you think about it? I see you're probably um more likely to share over here in a more community-driven society than America. But even still, I think there's an inherent belief that because you have more money, you have done something better than somebody else. Whether that's you've studied harder in school or your family is just quote unquote

better than somebody else's family. And I think that's going to be a very difficult thing for humanity to overcome because now we've achieved this sort of plateau of productivity and we're calling upon those who've done the best to share with everyone else even though they intrinsically believe that they're better than them. So I don't think that goes away just because you have a flatter um income distribution structure. Even in in China there's you know the princlings and those who are very very rich who believe they're better than everyone else because of the decisions that they've made. I don't know how we're going to get over that without some calamitous political infighting uh globally.

Favorite Crypto Themes & Innovations

>> All right. So, it's clear that the government's going to keep printing money and fiat currencies will be debased. Crypto will most likely go up meaningfully over the next few years. With that set up, I want to shift gears into just hearing a bit about what specific crypto themes are you excited about today? Um where's your head? What are you thinking about? Uh I mean obviously we love DeFi at Maelstrom and if you look at our portfolio our best performing things you know Athena stable coins uh DeFi I wrote a before this one was about stable coins and how I believe that this is the policy of uh the American empire to try to force dollars around the world and that's going to benefit the DeFi ecosystem because you're going to onboard you know millions or billions of people to using these tokens to represent whether it's a

fiat currency or it's a a bond or it's a bank deposit. what have you. And so we're super bullish on on all things DeFi in the medium, the longer term, but obviously there are some short-term hiccups that, you know, relevant projects could not do so well uh in the short term, but in the longer term, we're very positive on that kind of stuff. >> What's your analysis of Perpexes right now? Obviously, you are one of the originators of the perpetual features over at BitMX, but uh I know you're bullish on Hyperlid and then you caught a little bit of flack for for moving on from that. Um but yeah, where's your head out on perpex? So I think that Hyperlid could by 2028 keyword 2028 um go up a lot or you know whatever the

Perp DEXes & Hyperliquid

relevant leading uh DEX is but I think that Hyperlid is now going to experience some real competition and the competition is from low to no fee trading because they've proven that finally the the retail customer is ready for a decentralized trading experience. um they're ready to connect their wallet and trade on chain and you know they generated these volumes. Okay, cool. Hyper four basis points or whatever it is, right? And they've proven that there is good alignment between taking your revenues, buying back your token, creating wealthy folks who get an air drop for trading. Okay, so then what does the next project do? They go, okay, great. I have this token. Um, I'm gonna charge zero for trading and I'm gonna do

this massive air airdrop and if you trade on my platform, it cost you nothing in terms of just the fee to me, but you're going to possibly get this lottery ticket that could go up 10 to 100x in the next three months. I'm going to vampire squid attack all of your volume hyperlquid. Um, and you've seen this with if you look at the lead table assuming the volumes are legit. I know there's been questions about that of lighter and aster and some of these other protocols because at the end of the day uh from the dexes the customer wants the cheapest price uh it's onchain they're not having to pay for security that's handled by uh the layer 1 blockchain so then it gets becomes a race to zero and then what value ad service does the dex provide that allows you to charge a fee and I think that's

what we're going to figure out and in hyperlquid's case the issue is that because they have this massive unlock happening in the next uh two months before all these new competitors started lowballing them. You could say, "Oh, well, they're going to make however many billions of dollars, buy back the token, and I don't really care about it unlock." Well, if I guess have competitors out there offering zero, uh then and I have to somehow lower my fees or do something to get keep the traders trading which could materially decline decrease the revenue that I make. Well, then now I can't buy back all these tokens that the the traders are worried about that my developers will be selling. And and that's sort of the situation in the very very short term that Hyperlquid has to overcome. And we'll see what happens with the micro

structure of the market of what are these exchanges going to deliver to a trader in an environment where fees are close to zero. And it's kind of similar to what it was like in mainland China um before the PBC banned Bitcoin trading um in 2017 where spot trading was free there. There was no fees. And so then how did you know how did OKCO Hi and BTC China make money? They made money on the float of Redmond B sitting in the bank. They made money on new issues. They made money trading against their clients. Uh so like how what is this going what's the revenue stream for Hyperlid and Lighter and Aster and all the other platforms if trading is free?

Um, I probably already know the answer to this question, but I'm going to ask it anyway. So, do you think that the quoteunquote revenue meta that Hyperlid spearheaded, is that a flash in the pan and sort of a race to zero at this point >> Well, no, because they'll the race to zero starts and then, you know, everyone but one fails and then the one that survives then jacks the fees just like everything else, right? It's I'll make it up in volume kind of mantra. You know, obviously everyone except one person doesn't make it up with volume. So then which one does? Who knows? So, you're not ready to make a claim on who's going to make it. You just have to wait for it to all play out and then just once you see who the winner is, just ride it from there.

>> Exactly. Because I think that the decentralized trading experience is superior to a centralized trading experience and the uncustomer doesn't realize that what the reason why the sex has to charge more money than a DEX is because a sex has to pay for security, the wallet security, the security of um you know settlement. Whereas the DEX outsources that security to the layer 1 blockchain, and that's in the form of sequencer fees and gas. Again, you're still paying, but you don't equate the payment to the actual service. You equate it to somewhere else over here. And so, you believe that you're trading for free, but you're not actually trading for free. It might actually be more expensive in the end, but it doesn't matter. It's all a perception issue. Using a similar philosophy to SMH, the VANC Fabas Semiconductor ETF, ticker SMHX, goes even deeper,

VanEck Ad

exclusively investing in fab semiconductor innovators designing AI infrastructure. Behind the scenes, we're talking high bandwidth memory, power management chips, custom accelerators, and ultraast interconnects. The critical components that make large AI models run faster, smarter, and more efficiently. Go to van.com/snhx felix to learn more. As always, investments in blockchain technology involve risk terms and conditions apply. Do your own research. Got it. So within that framework of the emergence of yeah Dex per that are just becoming very sophisticated. What role do sexes play within that world? Are what's the plan for them? Do you think

Stablecoin Winners & Losers

>> I think that the sexes are still going to be very relevant because there's lots of, you know, high frequency trading shops, institutional players who cannot trade on chain or who do not want to trade on chain. Um, they're still a bit faster. You know, if you're talking about like, you know, high uh act uh uh active transaction settlement latency, those sorts of things, like a sex is still way faster. Um, they'll probably make a lot of money on new issues, right? Uh, until, you know, one of these platforms sort of takes over that market. But I still think there's a long way to go before the DEX uh takes over in terms of the most um prevalent method of trading for crypto.

>> Got it. All right. I want to shift gears to the other big thing that you mentioned there, which is stable coins. Um curious where your head is at in terms of the different types of innovation. It feels like it's just outright stable coin season right now. We had the Genius Act passed. Um you mentioned Athena earlier, which you've been invested in, has been popping off. Yeah. But where's your where's your head on on the story for for stable coins from the macro narrative in terms of being the big buyers of debt but then also some of the more interesting technological advances. So I mean I obviously I think that this is the policy of the US government to uh get dollars out to a lot more people whether it's the Euro dollar market or it's ordinary folks who are not in America would rather want to have a dollar bank

account but they're regulators for obvious reasons don't want them have a dollar bank account and they're going to use the big tech platforms as their sort of attack mechanism and stable coins as a way to dollarize the global south. But in terms of like the the technology it's not that difficult. I think that most of these projects are zeros in terms of these new stable coin projects because if you don't have a distribution arm, you don't have a social media company, you don't have a large exchange, you don't have a large sort of MNC um multinational, you know, FMCG business that has lots of clients, then you got to spend to get those clients. You have to spend for that network effect. And you're, you know, 10 years behind the curve of Tether and Circle and Athena and all these other guys. So then how

are you going to get enough money for that? So, I think I would never invest in a new stable coin issuer who doesn't have one of these um distribution modes. I think a lot of these local currency stable coins are zeros as well because at the end of the day, the clients in these markets want a dollar bank account. That's what they want. You know, Korea, Japan, Hong Kong, Singapore, all these Asian countries like domestic banking is very good. You know, you can instantly send people money as long as you have a bank account. You can, you know, scan QR codes. It's not that bad, right? You don't need a stable coin. why would I spend more money in some way, shape or form to, you know, subsidize this stable coin issuer building up a network. So, I think those are zeros as well. I think

the real um things that might be investable are how do you allow small businesses to accept stable coin payments whether it's uh uh systems or it's uh some sort of SDK that allows them to uh easily switch between fiat currency to pay their taxes and whatever and stable coin payments from from their clients the accounting mechanisms that these companies will do like third triple entry book bookkeeping and those sorts of things. So, I think that's a very investable area in the in the stable coin space. >> This is kind of an out there tailor risk question associated with stable coins, but okay, we've we've talked a bit about this that dune loop situation. And it's like, all right, well, if we're going to anchor a bunch of stable coins to US

Stablecoin Systemic Risk

Treasury debt and then, I don't know, say we got like a Treasury auction failure or something like that, how do you underwrite the potential systemic risk that all right, we created crypto to be able to opt out of this debt doom loop situation, but now we've just backed the entire industry by stable coins, which are backed by T bills. How do you discount that possibility of it occurring? And do and if it were to occur, is that why it's just like all right, we should always own a little bit of B bit Bitcoin too because that's the one true asset separated from the rest of that or how do you view all of that? So I mean before you know Howard Lutnik was who you know the owner of Caner Fitzgerald who's also an investor in Tether was in a position of political power there was a you know very big fear

of like what happens when someone shuts off Circle in Tether's banking situations and that was one of the reasons why I put out this idea for Athena which is why are we using this dollar substitute that requires the US banking system which hates us and we want to and we hate them too um to allow to exist. That's why we should use perpetuals and bitcoin and other currencies to create this synthetic dollar and that's why Athena was created and I think it's done very well. So if we are worried about that scenario where the banking system you know turns hostile again well we have things like Athena which are do not use the banking system to maintain their peg. Now, if you're worried about, you know, the treasuries not holding a dollar, well, I

think the US government's never going to default on a debt because they have a printing press and it costs them nothing to make sure they nominally make sure that every Treasury debt holder gets paid back. Yeah, the real value is whatever the real value is, but on a nominal basis, I don't I'm not worried about, you know, Treasury auction failure and all those sorts of things. >> Yeah, I definitely agree with that. Um, last major crypto theme I want to talk a bit about. Obviously, you've been known for your thoughts on DeFi, on exchanges, on purpose, etc., etc. Um, just want to tie into some of the conversations about happening here today in terms of this intersection between AI and crypto. This idea of intellectual property coming on chain. Basically, these ideas of taking things that are outside of crypto and bringing them on chain. What's your high

AI, Intellectual Property, and Blockchain

level framework for how to think about all that? >> I always think about it as like what is the most standardized thing that I can trade? Like why do people trade lots on these commodity markets? because you've standardized a contract like okay you know a oil contract is so many barrels of oil and that is in the contract right we don't trade all these like random idiosyncratic things because it's hard to get liquidity in one place so if we're going to have intellectual property traded on a blockchain I'm interested in what is the most standardizable unit of that thing that I can trade that I we all can agree on to trade is not going to be the idiosyncratic movie or book or whatever that's going to have liquidity It's going to be something more fundamental

that I and everyone else can agree on that we want to trade this that's upstream from everything else. I don't know what that is, but when we figure that out, that's what I'm interested in, not just the long tale of assets because it's very difficult to build liquidity in that in that manner in a two-sided marketplace. All right, final question here. But as somebody that knows the western crypto industry really well and the Asian crypto industry really well, what is the one thing that the western side of the crypto industry can learn from what's going on here in Asia, here in Korea, here in Singapore, etc. >> I mean, I think the big thing is that the people who trade the most and use this stuff the most are here, right?

Western vs. Asian Crypto Markets

Even it's like stable coins. You people in the US are like gaga over stable coins. None of these use stable coins, but we all use them. You know, I use them in Argentina. I use them in Indonesia. I use them all over the world, right? Because that's where they're needed and that those are the solutions that work. Or trading perpetuals. It wasn't America that started trading this Like it was Korea that really started trading perpetuals in size when we first launched them back in 2016. So I think you know obviously there's lots of technological innovations that happened in in the western more I guess basically the United States versus the rest of the world. But you know what? Eurasia accounts for like 75% of all human biomass in the world. So it's us who determines what is going to be a

successful solution, not you know the financial capitalists in New York and Silicon Valley. >> Boom. There you go, Arthur Hayes. Great to have you here at the Origin Summit. Thanks again. Thank you.