Arthur Hayes: The New Model Under 'Trumponomics' and the Million-Dollar Road of BTC

Original Author: Arthur Hayes

Original translation: Deep Tide TechFlow

(Any views expressed in this article are solely the author’s personal opinions and should not be taken as a basis for investment decisions or as investment advice.)

On December 31, 2024, do you think the price of Bitcoin will be above $100,000 or below $100,000?

There is a famous saying in China: ‘No matter if a cat is black or white, as long as it can catch RATS, it is a good cat.’

I will refer to the policies implemented by President Trump after his new election as “Chinese-style American capitalism”.

The elites who rule Pax Americana do not care whether the economic system is capitalism, socialism, or fascism; they only care if the policies implemented help maintain their power. The United States ceased to be purely capitalist as early as the beginning of the 19th century. Capitalism means that when the rich make wrong decisions, they lose money. This situation was banned as early as 1913 when the Federal Reserve System was established. With the impact of privatized profits and socialized losses on the country, and the extreme class divide created between the ‘vile’ or ‘lower-class’ people living inland and the noble, respected coastal elites, President Roosevelt had to correct the course and give some breadcrumbs to the poor through his ‘New Deal’ policies. Then, just like now, expanding government relief for the disadvantaged is not a policy welcomed by the so-called wealthy capitalists.

The shift from extreme socialism (in 1944, the top marginal tax rate on income over $200,000 was raised to 94 percent) to unfettered corporate socialism began in the 1980s under the Reagan administration. Subsequently, central banks injected money into the financial services industry by printing money, hoping that wealth would gradually flow from the top to the bottom, a neoliberal economic policy that lasted until the COVID pandemic in 2020. President Trump, in his response to the crisis, displayed the Roosevelt spirit at heart; For the first time since the New Deal, he disbursed the most money directly to the entire population. The United States printed 40% of the world’s dollars between 2020 and 2021. Trump turned on the handout of “stimulus checks,” and President Biden continued this popular policy during his tenure. When assessing the impact of government balance sheets, there were some peculiar phenomena between 2008 and 2020 and 2022.

From 2009 to the second quarter of 2020, it was the peak period of the so-called “trickle-down economics”, during which the rise of the economy mainly relied on the central bank’s printing policy, commonly known as quantitative easing (QE). As you can see, the rise rate of the economy (nominal GDP) was lower than the accumulation rate of national debt. In other words, the rich used the funds they received from the government to purchase assets. These transactions did not bring about substantial economic activity. Therefore, providing tens of trillions of dollars to wealthy financial asset holders through debt actually increased the ratio of debt to nominal GDP.

From the second quarter of 2020 to the first quarter of 2023, President Trump and President Biden took different approaches. Their treasury departments issued the debts purchased by the Federal Reserve through quantitative easing (QE), but this time not to the wealthy, but directly mailed checks to every citizen. The bank accounts of the poor did receive cash. Clearly, Jamie Dimon, CEO of JPMorgan Chase, made a lot of profit from the government’s transfer fees… He is known as the Li Ka-shing of the United States, and you cannot avoid paying fees to him. The reason why the poor are poor is because they spend all their money on purchasing goods and services, and during this period, they did indeed do so. With the significant increase in the velocity of money circulation, the economy rose rapidly. In other words, $1 of debt brought about more than $1 of economic activity. Therefore, the magical ratio of U.S. debt to nominal GDP miraculously decreased.

However, inflation has intensified as the supply of goods and services cannot keep up with the rise in purchasing power obtained through government debt. Wealthy individuals holding government bonds are dissatisfied with these populist policies. These wealthy individuals have experienced the worst overall returns since 1812. In response, they have sent Federal Reserve Chairman Jay Powell, who began raising interest rates in early 2022 to control inflation, while the general public hopes for another round of stimulus checks, but such policies have been prohibited. U.S. Treasury Secretary Yellen intervened to counter the impact of the Federal Reserve’s tightening monetary policy. By shifting debt issuance from long-term bonds to short-term notes, she depleted the Federal Reserve’s reverse repo facility (RRP). This injected nearly $25 trillion in fiscal stimulus into the market, primarily benefiting wealthy individuals holding financial assets; as a result, the asset market thrived. Similar to after 2008, government aid to these wealthy individuals did not lead to actual economic activity, and the U.S. debt-to-nominal GDP ratio began to rise again.

Will Trump’s incoming cabinet draw lessons from recent US economic history? I believe so.

Scott Bassett, widely considered as Trump’s choice to replace Yellen as U.S. Treasury Secretary, has delivered many speeches on how he can “fix” America. His speeches and columns elaborate on how to implement Trump’s “America First” plan, which bears striking resemblance to China’s development strategy (which began in the 1980s under Deng Xiaoping and continues to this day). The plan aims to promote the return of key industries (such as shipbuilding, semiconductor factories, and automobile manufacturing) by providing tax breaks and subsidies, thus promoting a rise in nominal GDP. Eligible companies will be able to obtain low-interest bank loans. Banks will once again actively lend to these operational companies because their profitability is guaranteed by the U.S. government. As companies expand their operations in the U.S., they need to hire American workers. Higher-paying jobs for ordinary Americans mean increased consumer spending. These effects will be more significant if Trump restricts immigration from certain countries. These measures stimulate economic activity, and the government earns revenue through corporate profits and personal income taxes. To support these plans, the government’s budget deficit needs to be maintained at a high level, and the Treasury Department raises funds by selling bonds to banks. With the Fed or legislators suspending supplemental leverage ratios, banks can now re-leverage their balance sheets. The winners are ordinary workers, companies that produce “qualified” products and services, and the U.S. government, whose debt-to-nominal GDP ratio decreases. This policy is equivalent to super-quantitative easing for the poor.

Sounds great. Who would oppose such a prosperous American era?

The losers are those who hold long-term bonds or savings deposits, because the yields on these instruments will be deliberately depressed below the nominal growth rate of the US economy. If your wages can’t keep up with higher inflation levels, you’ll also be affected. Notably, union membership is once again in vogue. “4 and 40” became the new slogan to give workers a 40% pay rise over the next four years, i.e. 10% per year, to motivate them to keep working.

For those readers who consider themselves wealthy, don’t worry. Here is an investment guide. This is not financial advice; I’m just sharing what I do in my personal investment portfolio. Whenever a bill is passed and funds are allocated to specific industries, read carefully and invest in stocks of those industries. Instead of putting money into government bonds or bank deposits, buy gold (as a hedging strategy for the baby boomer generation to cope with financial repression) or BTC (as a hedging strategy for the millennial generation to cope with financial repression).

Clearly, my investment portfolio prioritizes BTC, other cryptocurrencies, and stocks of companies related to cryptocurrencies, followed by gold stored in vaults, and finally stocks. I will keep a small amount of cash in money market funds to pay my Ame x bills.

In the rest of this article, I will explain how the quantitative easing policies of the rich and the poor impact the rise of the economy and the money supply. Then, I will predict how the exemption of banks from the supplementary leverage ratio (SLR) will once again make unlimited quantitative easing for the poor possible. In the final section, I will introduce a new index to track the supply of US bank credit and demonstrate how BTC outperforms all other assets after adjusting for bank credit supply.

Money Supply

I deeply admire the high quality of Zoltan Pozar’s Ex Uno Plures series of articles. During my recent long weekend in the Maldives, I enjoyed surfing, Ayanga yoga, and myofascial massage, and read all of his works. His works will appear frequently in the rest of this article.

Next, I will present a series of hypothetical accounting entries. On the left side of the T-shaped chart are assets, and on the right side are liabilities. Blue entries indicate value increases, while red entries indicate value decreases.

The first example focuses on how the Fed’s quantitative easing purchases of bonds affect the money supply and economic rise. Of course, this example and subsequent examples will be slightly humorous to increase their interest and appeal.

Imagine that you are Jerome Powell during the banking crisis in March 2023 in the United States. To relieve stress, Powell went to the Racquet and Tennis Club at 370 Park Avenue in New York City to play squash with a billionaire friend. Powell’s friend is very anxious.

This fren, we call him Kevin, is a seasoned financial professional. He said, ‘Jay, I may have to sell my house in Hampton. All my money is deposited in Signature Bank, and apparently my balance exceeds the limit of federal deposit insurance. You have to help me. You know how difficult it is to stay in the city for a day without XTZ in the summer.’

Jay replied, “Don’t worry, I will take care of it. I will carry out a $2 trillion quantitative easing. This will be announced on Sunday evening. You know the Fed always supports you. Without your contribution, who knows what the United States would become. Imagine if Trump had to take back power because of Biden’s handling of the financial crisis. I still remember in the early 80s when Trump snatched my girlfriend at Dorsia, it was really annoying.”

The Fed has created the Term Asset-Backed Securities Loan Facility, which is different from direct quantitative easing, to address the banking crisis. But please allow me to do some artistic processing here. Now, let’s see how the $2 trillion quantitative easing affects the money supply. All figures will be in billions of dollars.

• The Federal Reserve bought $200 billion worth of government bonds from Blackrock and paid for it through reserves. JP Morgan, as a bank, acted as an intermediary in this transaction. JP Morgan received $200 billion in reserves and recorded a $200 billion deposit for Blackrock. The Federal Reserve’s quantitative easing policy enabled banks to create deposits, which ultimately became currency.
• Blackrock, which has lost government bonds, needs to reinvest the funds in other interest-bearing assets. Blackrock’s CEO, Larry Fink, usually only collaborates with industry leaders, but at the moment, he is quite interested in the technology sector. A new Social Web application called Anaconda is building a user community to share user-uploaded photos. Anaconda is in the rise stage, and Blackrock is happy to purchase their bonds worth 2 trillion dollars.
• Anaconda has become an important player in the US Capital Market. They have successfully attracted a user base of males aged 18 to 45, causing them to be obsessed with this application. As these users reduce their reading time and spend more time browsing the app, their productivity has significantly decreased. Anaconda funds stock buybacks for tax optimization through the issuance of debt, so they do not need to repatriate overseas retained earnings. Reducing the number of shares not only increases the stock price but also increases earnings per share, as the denominator decreases. Therefore, passive index investors like Blackrock are more inclined to buy their stocks. As a result, after the nobles sell their stocks, there is an additional $200 billion in deposits in the bank account.
• Anaconda’s shareholders do not have an urgent need to use this funding. Gagosian hosted a grand party at the Miami Basel Art Fair. At the party, the nobles decided to purchase the latest artworks to enhance their reputation as serious art collectors and leave a deep impression on the beauties at the booth. The sellers of these artworks are also from the same economic class. As a result, the buyers’ bank account was credited, while the sellers’ account was debited.

After all these transactions, no actual economic activity was created. By injecting $20 trillion into the economy, the Federal Reserve essentially only increased the bank account balances of the wealthy. Even financing for a US company did not lead to economic rise, as the funds were used to boost stock prices rather than create new job opportunities. $1 of quantitative easing leads to an increase of $1 in the money supply, but it does not generate any economic activity. This is not a rational use of debt. Therefore, from 2008 to 2020, the ratio of debt to nominal GDP rose among the wealthy during the period of quantitative easing.

Now, let’s take a look at President Trump’s decision-making process during COVID. Back in March 2020: In the early stages of the COVID outbreak, Trump’s advisors suggested to him to ‘flatten the curve.’ They advised him to shut down the economy and only allow ‘essential workers’ to continue working, who are usually those who sustain operations on low wages.

Trump: “Do I really need to close the economy because some doctors think this flu is serious?”

Advisor: Yes, Mr. President. I must remind you that older individuals like yourself are at risk of developing complications from COVID-19 infection. I also want to point out that if they become ill and require hospitalization, treating the entire population aged 65 and above would be very expensive. You need to lock down all non-essential workers.

Trump: “This will lead to an economic collapse, and we should give everyone a check so they won’t complain. The Fed can buy the Treasury’s issuance of debt, which will fund these subsidies.”

Next, let’s use the same accounting framework to analyze how quantitative easing gradually impacts ordinary people.

• Just like in the first example, the Federal Reserve used reserve funds to conduct $200 billion in quantitative easing by purchasing Blackrock’s Treasury bonds.
• Unlike the first example, this time the Treasury Department is also involved in the fund flow. In order to pay for the economic stimulus checks of the Trump administration, the government needs to raise funds through the issuance of bonds. Blackrock chooses to purchase government bonds instead of corporate bonds. JP Morgan assists Blackrock in converting its bank deposits into reserves of the Federal Reserve, which can be used to purchase government bonds. The Treasury Department receives deposits similar to a checking account in the Treasury General Account (TGA) at the Federal Reserve.
• The Ministry of Finance will stimulate sending checks to everyone, mainly the general public. This leads to a decrease in TGA balance, while the corresponding increase in reserve funds held by the Federal Reserve, which become ordinary people’s bank deposits at JP Morgan.
• The general public spent all their stimulus checks on buying new Ford F-150 pickup trucks. Ignoring the trend of electric vehicles, this is America, they still love traditional fuel cars. The bank account of the general public was deducted, while Ford’s bank account increased its deposit.
• Ford did two things in selling these trucks. First, they paid workers’ wages, which transferred deposits from Ford’s account to the employees’ account. Then, Ford applied for a loan from the bank to expand production; the loan issuance created new deposits and increased the money supply. Finally, the general public planned to go on vacation and obtained personal loans from the bank, given the good economic situation and their high-paying jobs, the bank was happy to provide loans. The general public’s bank loans also created additional deposits, just like when Ford borrowed money.
• The final deposit or monetary balance is $300 billion, which is $100 billion more than the initial $200 billion injected by the Fed’s quantitative easing. From this example, it can be seen that quantitative easing for the general public has stimulated the economy. Stimulus checks issued by the Treasury encourage ordinary people to buy trucks. Due to the demand for goods, Ford is able to pay its employees’ wages and apply for loans to increase production. Employees with high-paying jobs have obtained bank credit, enabling them to consume more. $1 of debt generates more than $1 of economic activity. This is a positive outcome for the government.

I would like to further explore how banks can provide unlimited financing to the Ministry of Finance.

We will start from step 3 above.

• The Ministry of Finance has begun to distribute a new round of economic stimulus funds. To raise these funds, the Ministry of Finance finances through auctioning bonds, and JPMorgan, as the primary dealer, uses its reserves at the Federal Reserve to purchase these bonds. After selling the bonds, the Ministry of Finance’s TGA account balance at the Federal Reserve increases.
• Just like the previous example, the check issued by the Treasury will be deposited into J.P. Morgan’s account by ordinary people.

When the Ministry of Finance issuance purchases bonds from the banking system, it transforms originally useless Federal Reserve reserves into deposits for ordinary people, which can be used for consumption, thus boosting economic activity.

Now let’s take a look at another T example. What happens when the government encourages the production of specific goods and services by providing tax breaks and subsidies?

In this example, the United States ran out of bullets while filming a Persian Gulf shootout inspired by Clint Eastwood westerns. The government passed a bill promising to subsidize ammunition production. Smith and Wesson applied for and received a contract to supply the military with ammunition, but they couldn’t produce enough bullets to fulfill the contract, so they applied for a loan from JPMorgan to build a new factory.

• After receiving the government contract, Morgan Stanley’s loan officer confidently lent $1000 to Smith and Wilson. Through this loan transaction, $1000 in funds was created out of thin air.
• Smith and Watson built factories, bringing in wages, which eventually became deposits for J.P. Morgan. The funds created by J.P. Morgan became deposits for those most inclined to consume, namely the ordinary people. I have explained how the consumption habits of ordinary people drive economic activity. Let’s tweak this example slightly.
• The Ministry of Finance needs to fund subsidies to Smith and Watson by auctioning $1000 of new debt. JPMorgan Chase participates in the auction to purchase the debt, but does not have enough reserves to pay off the debt. As the use of the Fed’s discount window no longer has any negative effects now, JPMorgan Chase uses its Smith and Watson company debt assets as collateral to obtain reserve loans from the Fed. These reserves are used to purchase new debt issued by the Ministry of Finance. Then the Ministry of Finance pays subsidies to Smith and Watson, and this funding becomes JPMorgan Chase’s deposit.

This example illustrates how the US government encourages JPMorgan Chase to create loans through industrial policies, and uses the assets formed by the loans as collateral to purchase more US Treasury debt.

The Ministry of Finance, the Federal Reserve, and banks seem to be operating a magical “money-printing machine” that can achieve the following functions:

• Adding financial assets to the rich, but these assets do not bring actual economic activity.
• Inject funds into the bank account of the poor, who will typically use this money to consume goods and services, thereby driving actual economic activity.
• Ensure the profitability of certain enterprises in certain industries, which enables enterprises to expand through bank credit, thereby driving real economic activities.

So, are there any restrictions on such operations?

Of course. Banks cannot create funds without limit, as they must hold expensive capital for every debt asset they hold. In technical terms, different types of assets have the cost of risk-weighted assets. Even ‘risk-free’ government bonds and Central Bank reserves require capital expenditure. Therefore, banks cannot effectively participate in the bidding of US Treasury bonds or the issuance of corporate loans at a certain Node.

The reason why banks need to provide capital for loans and other debt securities is that if the borrower goes bankrupt, whether it is the government or a company, someone needs to bear the total loss. Since banks choose to create money or buy government bonds for profit, it is reasonable for their shareholders to bear these losses. When the loss exceeds the bank’s capital, the bank will collapse. The collapse of a bank not only causes depositors to lose their deposits, which is already bad enough, but from a systemic perspective, it is even worse that the bank cannot continue to expand the credit volume in the economy. Since the fractional reserve legal financial system requires continuous credit issuance to maintain its operation, the collapse of a bank may cause the entire financial system to collapse like a domino effect. Remember - one person’s asset is another person’s liability.

When a bank’s equity credit is exhausted, the only way to save the system is for the central bank to create new legal tender and use it to exchange the bank’s non-performing assets. Imagine if Signature Bank only lent to Su Zhu and Kyle Davies of the already closed Three Arrows Capital (3AC). Su and Kyle provided the bank with false financial statements, misleading the bank about the company’s financial health. They then withdrew cash from the fund and transferred it to their wives, hoping to avoid bankruptcy liquidation. When the fund went bankrupt, the bank had no assets to recover, and the loan became worthless. This is a fictional scenario; Su and Kyle are good people and would not do such a thing ;). Signature donated a large amount of campaign funds to Senator Elizabeth Warren, a member of the U.S. Senate Banking Committee. With political influence, Signature convinced Senator Warren that they deserved to be saved. Senator Warren contacted Fed Chair Powell and requested the Fed to exchange 3AC’s debt at face value through the discount window. The Fed complied, allowing Signature to exchange 3AC’s bonds for new issuance dollars to address any deposit outflows. Of course, this is just a fictional example, but its implication is that if banks do not provide enough equity capital, the entire society will ultimately bear the consequences of currency devaluation.

Perhaps there is some truth in my assumption; the following is a recent news from the Strait Times:

The wife of Zhu Su, co-founder of the bankrupt cryptocurrency hedging fund Three Arrows Capital (3AC), successfully sold her luxury home in Singapore for $51 million, despite the court freezing some of the couple’s other assets.

Assuming the government wishes to create an unlimited amount of bank credit, they must modify the rules so that government bonds and certain ‘approved’ corporate debts (e.g., investment-grade bonds or specific industries such as semiconductor company issuance debts) can be exempt from the supplementary leverage ratio (SLR) restriction.

If government bonds, Central Bank reserves, and/or approved corporate debt securities are exempt from the SLR restrictions, banks can purchase these debts unlimitedly without having to bear expensive capital. The Fed has the power to grant such exemptions, and they did so from April 2020 to March 2021. At that time, the U.S. credit market was stagnant. In order to enable banks to participate in government bond auctions and provide loans to the U.S. government, the Fed took action because the government planned to distribute trillions of dollars in stimulus funds but did not have enough tax revenue to support them. This exemption measure has achieved significant results, and banks have purchased a large amount of government bonds as a result. However, the cost was that when Powell raised the interest rate from 0% to 5%, the prices of these government bonds plummeted, leading to a regional banking crisis in March 2023. There’s no such thing as a free lunch.

In addition, the level of bank reserves also affects the willingness of banks to purchase government bonds in auctions. When banks feel that their reserves at the Federal Reserve have reached the lowest comfortable reserve level (LCLoR), they will stop participating in the auctions. The specific value of LCLoR will only be known afterwards.

This is a chart from a presentation on financial market resilience released by the Treasury Borrowing Advisory Committee (TBAC) on October 29, 2024. The chart shows that the proportion of Treasury bonds held by the banking system is decreasing, approaching the Lowest Comfortable Liquidity Reserve (LCLoR) level. This poses a problem as the marginal buyers in the Treasury market have become unstable bond trading Hedging funds, due to the Federal Reserve’s quantitative tightening (QT) and central banks of surplus countries selling or no longer investing their net export earnings (i.e., de-dollarization).

This is another chart in the same presentation. From the chart, we can see that Hedging funds are filling the gap left by banks. However, Hedging funds are not actual fund buyers. They profit from Arbitrage trades, that is, buying cash treasury bonds at a low price while shorting treasury bond futures contracts. The cash portion of the trade is financed through the repurchase market. Repurchase trades refer to the exchange of assets (such as treasury bonds) for cash over a period of time at a certain Intrerest Rate. When using treasury bonds as Collateral for overnight financing in the repurchase market, the pricing is based on the available capacity of the commercial bank’s balance sheet. As the capacity of the balance sheet decreases, the repurchase Intrerest Rate will rise. If the financing cost of treasury bonds increases, Hedging funds can only buy more when treasury bonds are relatively cheaper than futures prices. This means that the auction price of treasury bonds needs to decrease and the yield will rise. This is contrary to the goal of the Ministry of Finance, which hopes to issuance more debt at a lower cost.

Due to regulatory restrictions, banks are unable to purchase sufficient government bonds and cannot provide financing for hedging funds to purchase government bonds at reasonable prices. Therefore, the Federal Reserve needs to once again exempt banks from SLR. This will help improve liquidity in the government bond market and allow for unlimited quantitative easing (QE) to be used in productive sectors of the U.S. economy.

If you are still unsure whether the Treasury Department and the Fed are aware of the importance of relaxing bank regulation, TBAC explicitly pointed out this need on the 29th slide of the same presentation.

Tracking Indicators

If Trump-o-nomics operates as I described, then we need to follow the potential rise of bank credit. Based on previous examples, we understand that quantitative easing (QE) targeting the rich is achieved by increasing bank reserves, while quantitative easing targeting the poor is achieved by increasing bank deposits. Fortunately, the Federal Reserve provides these two data points for the entire banking system every week.

I have created a custom Bloomie index that combines reserves with other deposits and liabilities . This is a custom index I use to track the amount of bank credit in the United States. In my opinion, this is the most important monetary supply indicator. As you can see, sometimes it leads BTC, like in 2020, and sometimes it lags behind BTC, like in 2024.

However, more importantly, the performance of assets when the bank credit supply is reduced. BTC (white), S&P 500 index (gold), and gold (green) are adjusted by my bank credit index. The values are standardized to 100. As can be seen, BTC has performed the most prominently, pumping over 400% since 2020. If you can only take one measure to resist the depreciation of Fiat Currency, that is to invest in BTC. The mathematical data is indisputable.

Future Development Direction

Trump and his economic team have clearly stated that they will implement a policy to weaken the US dollar and provide the necessary funds to support the reshoring of American industry. With the Republican party controlling all three branches of government in the next two years, they can push forward Trump’s entire economic plan without any hindrance. I believe the Democratic party will also join this ‘printing money party,’ because no politician can resist the temptation to distribute benefits to voters.

The Republican Party will take the lead in passing a series of bills to encourage manufacturers of key goods and materials to expand production domestically. These bills will be similar to the “Chip Act”, “Infrastructure Act”, and “Green New Deal” passed during the Biden administration. As companies accept government subsidies and obtain loans, bank credit will rise rapidly. For those skilled in stock selection, it may be worth considering investing in listed companies that produce products required by the government.

In the end, the Fed may relax its policy, at least exempting Treasury bonds and Central Bank reserves from the SLR (Supplementary Leverage Ratio). At that time, the road to unlimited quantitative easing will be smooth.

The combination of industrial policies driven by legislation and SLR exemptions will trigger a surge in bank credit. As I have stated, the velocity of funds under this policy is much higher than the traditional wealthy quantitative easing of the Fed. Therefore, we can anticipate that the performance of BTC and cryptocurrencies will be at least as impressive as between March 2020 and November 2021, and possibly even better. The real question is, how much credit will be created?

The stimulus measures for the COVID-19 pandemic injected around $4 trillion in credit. This time, the scale will be even larger. The rise in defense and medical expenditures has already exceeded the nominal GDP growth rate. As the United States increases defense spending to cope with the multipolar geopolitical environment, these expenditures will continue to rise rapidly. By 2030, the proportion of the population over 65 years old in the total population of the United States will peak, which means that medical expenses will accelerate their rise from now until 2030. No politician dares to cut defense and medical expenditures, otherwise they will be quickly eliminated by voters. All of this means that the Treasury Department will continue to inject debt into the market just to maintain normal operations. As I have shown before, the combination of quantitative easing and government borrowing has a currency circulation speed of more than 1. This deficit spending will enhance the nominal rise potential of the United States.

In the process of promoting the reshoring of American companies, the cost of achieving this goal will reach tens of trillions of dollars. Since 2001, when the United States allowed China to join the World Trade Organization, the United States has actively shifted its manufacturing base to China. In less than thirty years, China has become the global manufacturing center, producing high-quality products at the lowest cost. Even those companies planning to diversify their Supply Chain to countries outside China, which are claimed to have lower costs, have found the Depth integration of numerous suppliers on the east coast of China to be very efficient. Even though the labor costs in countries like Vietnam are lower, these companies still need to import intermediate products from China to complete production. Therefore, reshoring the Supply Chain back to the United States will be a daunting task, and if it must be done for political reasons, the cost will be very high. I mean, it will require providing cheap bank financing of up to tens of trillions of dollars to transfer production capacity from China to the United States.

Reducing the debt-to-nominal GDP ratio from 132% to 115% cost $4 trillion. Assuming that the U.S. further reduces this to 70% in September 2008, then linear projections would require the creation of $10.5 trillion in credit to achieve this deleveraging. This is the reason why the BTC price could reach $1 million, as the price is determined at the margin. As the circulating supply of BTC decreases, a large number of Fiat Currencies around the world will race for safe-haven assets, not only in the United States, but also in China, Japan, and Western Europe. Buy and hold for the long term. If you’re skeptical of my analysis of the impact of QE on the poor, one need only look back at the history of China’s economic development over the past three decades and you’ll understand why I call the new Pax Americana economic system “American capitalism with Chinese characteristics.”