Arthur Hayes new article: The new quantitative easing model under 'Trumponomics' and the million-dollar path of BTC

Original title: ‘Black or White?’

*Author: *Arthur Hayes

Compile: DeepTechFlow

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

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

In China, there is a famous saying: “No matter if it’s a black cat or a white cat, as long as it can catch RATS, it’s a good cat.”

I will refer to President Trump’s newly implemented policies as “American capitalism with Chinese characteristics”.

The elites who rule Pax Americana do not care whether the economic system is capitalism, socialism, or fascism; they only care whether 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 prohibited as early as 1913 when the Federal Reserve System was established. With the impact of privatized gains and socialized losses on the nation, and the extreme class differentiation between the ‘vulgar’ or ‘lower’ people living inland and the noble, respected coastal elites, President Roosevelt had to correct the course and give some crumbs to the poor through his ‘New Deal’ policy. Then, just like now, expanding government relief for the disadvantaged is not a policy welcomed by the so-called capitalists.

The shift from extreme socialism (in 1944, the top marginal tax rate on income over $200,000 was raised to 94%) to unfettered corporate socialism, began in the 1980s under the Reagan administration. Subsequently, the central bank 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 continued 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 economy mainly relied on the central bank’s printing money policy, commonly known as Quantitative Easing (QE). As you can see, the rise in the economy (nominal GDP) was slower than the accumulation speed of national debt. In other words, the wealthy used the funds they received from the government to purchase assets. These transactions did not bring about substantial economic activity. Therefore, providing 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, Presidents Trump and Biden took different approaches. Their Treasury departments issued debts purchased by the Fed through quantitative easing (QE), but this time not to the rich, but sent checks directly to every citizen. The poor did receive cash in their bank accounts. Obviously, Jamie Dimon, CEO of JPMorgan Chase, profited handsomely from the government’s transfer fees… He is known as the Li Ka-shing of the United States, and you cannot avoid paying him fees. The reason the poor are poor is because they spend all their money on goods and services, and during this period, they did exactly that. 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 U.S. debt-to-nominal GDP ratio miraculously decreased.

However, inflation has intensified as the supply of goods and services has not kept up with the rise in purchasing power gained through government debt. Wealthy individuals holding government bonds are dissatisfied with these populist policies. These wealthy individuals have experienced their 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 was hoping for another round of stimulus checks, but such policies have been prohibited. U.S. Treasury Secretary Yellen intervened to offset the impact of the Federal Reserve’s tightening monetary policy. By shifting debt issuance from long-term bonds to short-term bills, she depleted the Federal Reserve’s reverse repurchase facilities (RRP). This injected nearly $2.5 trillion in fiscal stimulus into the market, benefiting primarily those who hold financial assets; as a result, the asset market thrived. Similar to post-2008, this government relief for the wealthy did not bring about actual economic activity, and the debt-to-nominal GDP ratio in the United States began to rise again.

Has Trump’s upcoming cabinet learned lessons from recent US economic history? I believe so.

Scott Bassett, widely seen as the pick to succeed Yellen as the U.S. Treasury Secretary under Trump, has made numerous speeches about how he will “fix” America. His speeches and op-eds lay out in detail how he would execute Trump’s “America First” plan, which bears similarities to China’s development strategy (which started in the Deng Xiaoping era in the 1980s and continues to this day). The plan aims to promote the return of key industries (such as shipbuilding, semiconductor factories, car manufacturing, etc.) through government-provided tax breaks and subsidies, thereby boosting nominal GDP rise. Qualified 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 these companies expand their operations in the U.S., they will need to hire American workers. Higher-paying jobs for ordinary Americans mean increased consumer spending. If Trump restricts immigration from certain countries, these effects will be even more pronounced. These measures stimulate economic activity, and the government gains revenue through corporate profits and personal income taxes. To support these plans, the government’s deficit needs to remain at a high level, and the Treasury raises funds by selling bonds to banks. With the Fed or lawmakers pausing the leverage ratio supplement, 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 falls. This policy is akin to super quantitative easing for the poor.

Sounds good. Who would oppose such a prosperous era in America?

Losers are those who hold long-term bonds or savings deposits, because the yield on these instruments will deliberately be kept below the nominal growth rate of the U.S. economy. If your wages cannot keep up with higher inflation levels, you will also be affected. It is worth noting that joining a union has become popular again. ‘4 and 40’ has become the new slogan, which means a 40% raise for workers in the next four years, or a 10% raise each year, to motivate them to continue working.

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

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

In the remaining part of this article, I will explain how quantitative easing policies for the rich and the poor affect the economy rise and the money supply. Next, I will predict how the exemption of the Supplementary Leverage Ratio (SLR) for banks may 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 sincerely admire the high quality of Zoltan Pozar’s Ex Uno Plures series. During my recent long weekend in the Maldives, I enjoyed surfing, Ashtanga yoga, and myofascial massage, and finished reading all of his works. His works will appear frequently in the rest of this article.

Next, I will demonstrate a series of hypothetical accounting entries. Assets are on the left side of the T-shaped account, and liabilities are on the right side. Blue entries represent value increase, while red entries represent value decrease.

The first example focuses on how the Federal Reserve’s purchase of bonds through quantitative easing affects money supply and economic rise. Of course, this example and subsequent examples will be slightly humorous to increase interest and appeal.

Imagine 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 was very anxious.

This fren, we call him Kevin, is a senior financial professional. He said, ‘Jay, I may have to sell my house in Hampton. All my money is stored 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 when XTZ is in summer.’

Jay replied, ‘Don’t worry, I’ll take care of it. I will implement a $2 trillion quantitative easing. This will be announced on Sunday evening. You know the Federal Reserve always has your back. Without your contributions, who knows what the United States would become? Imagine if Trump had to regain power because Biden had to deal with a financial crisis. I still remember in the early 80s when Trump stole my girlfriend at Dorsia, it was really annoying.’

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

The Fed purchased $200 billion worth of government bonds from Blackrock and paid for them through reserves. JP Morgan acted as an intermediary in the transaction as a bank. JP Morgan received $200 billion in reserves and recorded $200 billion in deposits for Blackrock. The Fed’s quantitative easing policy allowed banks to create deposits, which ultimately became currency.

After losing the government bonds, Blackrock 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 app called Anaconda is building a user community to share photos uploaded by users. Anaconda is on the rise, and Blackrock is happy to purchase their bonds worth 200 billion US dollars.

Anaconda has become an important player in the US Capital Market. They have successfully attracted a user base of 18 to 45 year old males, leading them to become addicted to 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 through debt issuance for tax optimization, eliminating the need to repatriate overseas retained earnings. Reducing the number of shares not only increases the stock price, but also improves earnings per share by reducing the denominator. Therefore, passive index investors like Blackrock are more inclined to buy their stocks. As a result, after selling off their stocks, the aristocrats have an additional $200 billion in their bank accounts.

The shareholders of Anaconda do not have an urgent need to use this capital. Gagosian held a grand party at Art Basel in Miami. 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 people of the same economic class. As a result, the buyer’s bank account was credited, while the seller’s account was debited.

After all these transactions, no actual economic activity was created. The Fed actually only increased the bank account balance of the rich by injecting $20 trillion into the economy. Even financing for a US company did not generate economic rise, as the funds were used to boost stock prices instead of creating new employment opportunities. $1 of quantitative easing leads to a $1 increase in money supply, but does not bring any economic activity. This is not a rational use of debt. Therefore, from 2008 to 2020, the debt-to-nominal GDP ratio rose among the rich during the period of quantitative easing.

Now, let’s take a look at President Trump’s decision-making process during the COVID period. Back to March 2020: In the early stages of the COVID outbreak, Trump’s advisors suggested that he “flatten the curve.” They recommended that he shut down the economy, allowing only “essential workers” to continue working, who are usually those who operate on low wages.

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

Advisor: "Yes, Mr. President. I must remind you that it is mainly elderly people like you who are at risk due to complications caused by COVID-19 infection. I would also like to point out that if they get sick and need to be hospitalized, it will be very expensive to treat the entire group of people over 65 years old. You need to block all non-essential workers. ”

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

Next, let’s use the same accounting framework to analyze step by step how quantitative easing affects ordinary people.

Just like in the first example, the Fed implemented a $200 billion quantitative easing by purchasing Blackrock’s government bonds using reserve funds.

Unlike the first example, this time the Treasury Department was also involved in the flow of funds. In order to pay for the Trump administration’s economic stimulus checks, the government needs to raise funds through the issuance of bonds. Blackrock chose to purchase bonds instead of corporate bonds. JP Morgan assisted Blackrock in converting its bank deposits into reserves at the Federal Reserve, which can be used to purchase bonds. The Treasury Department obtained deposits similar to a checking account in the Treasury General Account (TGA) at the Federal Reserve.

The Treasury will stimulate checks to everyone, mainly the general public. This leads to a decrease in TGA balance, while at the same time, the reserves held by the Fed correspondingly increase, which become the bank deposits of the general public at JP Morgan.

Ordinary people have spent all their stimulus checks on buying new Ford F-150 pickups. Ignoring the trend of electric vehicles, this is America, they still love traditional fuel vehicles. The bank account of ordinary people was deducted, while Ford’s bank account increased deposits.

Ford did two things in selling these trucks. First, they paid the workers’ wages, which transferred the bank’s deposits from Ford’s account to the employees’ account. Then, Ford applied for a loan from the bank to expand production; the issuance of the loan 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 the 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 $200 billion initially injected by the Fed through quantitative easing. From this example, it can be seen that quantitative easing, carried out for ordinary people, 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 employee wages and apply for loans to increase production. Employees with high-paying jobs have access to 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 the auction of bonds, and JPMorgan Chase, as the primary dealer, uses its reserves at the Federal Reserve to purchase these bonds. After selling the bonds, the Ministry of Finance’s account balance in the Federal Reserve’s TGA account increased.

Just like the previous example, the check issued by the Ministry of Finance will be deposited into Morgan Stanley’s account by ordinary people.

When the Ministry of Finance issues bonds purchased by the banking system, it converts the previously useless Federal Reserve reserves into deposits for ordinary people, which can be used for consumption, thereby promoting 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 shooting a Persian Gulf shootout film inspired by Clint Eastwood’s western movies. The government passed a bill promising to subsidize ammunition production. Smith and Wesson applied for and obtained a contract to provide ammunition to the military, but they were unable to produce enough bullets to fulfill the contract, so they applied to J.P. Morgan for a loan to build a new factory.

After receiving the government contract, the loan officer at J.P. Morgan confidently lent $1000 to Smith and Weston. This loan created $1000 out of thin air.

Smith and Watson built factories, bringing in wage income, which eventually became deposits for JPMorgan Chase. The funds created by JPMorgan Chase became deposits for those with the greatest propensity to consume, namely the ordinary people. I have already explained how the consumption habits of ordinary people drive economic activity. Let’s make a slight adjustment to this example.

The Ministry of Finance needs to fund subsidies to Smith and Wilson by auctioning off $1000 of new debt. JPMorgan Chase participates in the auction to purchase the debt, but does not have enough reserves to pay for it. Since there are no longer any negative effects from using the Fed’s discount window, JPMorgan Chase uses its Smith and Wilson’s corporate debt assets as collateral to obtain reserve loans from the Fed. These reserves are used to purchase new debt from the Ministry of Finance. The Ministry of Finance then pays subsidies to Smith and Wilson, and this funding becomes JPMorgan Chase’s deposits.

This example shows 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-making machine” that can achieve the following functions:

To increase financial assets for the wealthy, but these assets do not bring actual economic activity.

Injecting funds into the account of the poor bank, these people usually use this money for the consumption of goods and services, thereby promoting actual economic activity.

Ensuring the profitability of certain enterprises in specific industries enables these enterprises to expand through bank credit, thereby driving actual economic activity.

So, is there any restriction on such operations?

Of course. Banks cannot create funds unlimitedly because they must allocate expensive capital for every debt asset they hold. In technical terms, different types of assets have the cost of risk-weighted assets. Even assets considered ‘risk-free,’ such as government bonds and Central Bank reserves, require capital expenditure. Therefore, banks cannot effectively participate in bidding for US Treasury bonds or issuing corporate loans at a certain Node.

The reason why banks need to provide capital for loans and other debt securities is that if borrowers go 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 losses exceed the bank’s capital, the bank will collapse. Bank failures not only cause depositors to lose their deposits, which is already bad enough, but from a systemic perspective, the worse thing is that banks cannot continue to expand credit in the economy. Because the fractional reserve banking system requires continuous credit issuance to maintain operation, bank failures may cause the entire financial system to collapse like dominoes. Remember - one person’s assets are another person’s liabilities.

When a bank’s stock credit is exhausted, the only way to save the system is for the central bank to create new fiat currency 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’s assessment of the company’s financial health. Then they withdrew cash from the fund and transferred it to their wives in the hope that these funds would be exempt from 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 they 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 Chairman Powell, requesting 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 cope with any deposit outflows. Of course, this is just a fictional example, but the implication is that if banks do not provide enough capital, the entire society will ultimately bear the consequences of currency devaluation.

Perhaps there is some truth in my assumption; here is the latest news from The Straits Times:

The wife of Zhu Su, co-founder of the collapsed Crypto Assets Hedging fund Three Arrows Capital (3AC), successfully sold her luxury home in Singapore for a price of 51 million US dollars, despite the court freezing some of the couple’s other assets.

Suppose the government wants to create unlimited bank credit, then they must modify the rules so that government bonds and certain ‘approved’ corporate debts (such as investment-grade bonds or debts from specific industries such as semiconductor company issuance) can be exempt from supplementary leverage ratio (SLR) restrictions.

If government bonds, Central Bank reserves, and/or approved corporate debt securities are exempt from the SLR limit, banks can unlimitedly purchase these debts without having to bear expensive capital. The Fed has the power to grant such exemptions, which they did from April 2020 to March 2021. At that time, the U.S. credit market was stagnant. In order to re-engage banks 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. This exemption measure had a significant effect, and banks consequently purchased a large amount of government bonds. 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 bank crisis in March 2023. There’s no such thing as a free lunch.

In addition, the level of bank reserves also affects the bank’s willingness to buy government bonds in auctions. When banks feel that their reserves at the Federal Reserve have reached the minimum comfortable reserve level (LCLoR), they will stop participating in the auctions. The specific value of LCLoR is only known after the fact.

This is a chart from a presentation on financial resilience in the fiscal markets 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 as a percentage of total outstanding debt is decreasing, approaching the Lowest Comfortable Liquidity Reserve (LCLoR). This poses a problem because as the Fed undertakes Quantitative Tightening (QT) and surplus nations’ central banks sell or no longer invest their net export earnings (i.e., de-dollarization), the marginal buyers in the Treasury market have become unstable bond trading Hedging funds.

This is another chart in the same presentation. From the chart, it can be seen that Hedging funds are filling the gap left by banks. However, Hedging funds are not actual buyers of funds. They profit from Arbitrage trading by buying low-priced cash government bonds and shorting government bond futures contracts. The cash portion of the transaction is financed through the repurchase market. A repurchase transaction refers to exchanging assets (such as treasury bonds) for cash at a certain Interest Rate for a period of time. When using government bonds as Collateral for overnight financing in the repurchase market, the pricing is based on the available capacity of commercial bank balance sheets. As the capacity of the balance sheet decreases, the repurchase Interest Rate will rise. If the financing cost of government bonds increases, Hedging funds can only buy more when government bonds are relatively cheaper than futures prices. This means that the auction price of government bonds needs to decrease and the yield will rise. This is contrary to the goal of the Ministry of Finance, as they want to issue more debt at a lower cost.

Due to regulatory restrictions, banks are unable to purchase sufficient government bonds and provide financing at reasonable prices for hedging funds. Therefore, the Fed needs to exempt banks from the SLR again. This will help improve the liquidity of 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 in bank credit. As we have seen in previous examples, quantitative easing (QE) targeting the wealthy 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 and other deposits and liabilities . This is a custom index I use to track the quantity of credit in US banks. In my opinion, it is the most important monetary supply indicator. As you can see, sometimes it leads BTC, such as in 2020, and sometimes it lags behind BTC, such as in 2024.

However, more crucially, the performance of assets when bank credit supply shrinks is key. BTC (white), the S&P 500 Index (gold), and gold (green) have all been adjusted by my bank credit index. The values are standardized to 100, and it can be seen that BTC’s performance is the most outstanding, pumping over 400% since 2020. If you can only take one measure to hedge against Fiat Currency depreciation, that is to invest in BTC. The mathematical data is indisputable.

Future Development Direction

Trump and his economic team have explicitly stated that they will pursue a policy of weakening the US dollar and provide necessary funding to support the reshoring of American industry. With the Republican Party controlling all three branches of government in the next two years, they can unimpededly advance Trump’s entire economic plan. I believe the Democratic Party will also join this ‘money-printing 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 commodities 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 businesses 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.

Ultimately, the Fed may relax its policies, at least exempting government bonds and Central Bank reserves from the SLR (Supplementary Leverage Ratio). At that time, the path of unlimited quantitative easing will be smooth sailing.

The combination of legislatively-driven industrial policy and SLR exemptions will trigger a surge in bank credit. As I have indicated, the rate of flow of funds from this policy is far higher than the Fed’s traditional wealthy quantitative easing. Therefore, we can anticipate that the performance of BTC and cryptocurrencies will be at least as good as, if not better than, that of the period between March 2020 and November 2021. The real question is, how much credit will be created?

In the process of promoting the reshoring of American companies, the cost of achieving this goal will reach trillions of dollars. Since the United States allowed China to join the World Trade Organization in 2001, the United States has actively transferred 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 companies that plan to diversify their supply chain to countries other than China, which are said to have lower costs, have found that the integration of suppliers on the east coast of China is 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 their 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 that cheap bank financing of trillions of dollars will be needed 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 the US further reduces this ratio to 70% in September 2008, linear extrapolation suggests that $10.5 trillion in credit would need to be created to achieve this deleveraging. This is why the BTC price could reach $1 million, as prices are determined marginally. As the circulating supply of BTC decreases, a large amount of fiat currency worldwide will seek safe-haven assets, not only in the US but also from investors in China, Japan, and Western Europe. They will buy and hold long-term. If you are skeptical of my analysis of the impact of quantitative easing on the poor, just look back at the past 30 years of China’s economic development history, and you will understand why I call the new Pax Americana economic system ‘American capitalism with Chinese characteristics’.

Source: Shenzhen TechFlow