Arthur Hayes's new article: "Trumponomics" will massively print money, BTC to $1 million is a matter of time

Author: Arthur Hayes

Compiled by TechFlow

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

There is a famous saying in China: “No matter if it is a black cat or a white cat, the one that can catch RATS 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 implemented policies 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 was prohibited as early as 1913 when the Federal Reserve System was established in the United States. With the impact of privatized gains and socialized losses on the country, as well as the extreme class division between the ‘despicable’ or ‘lower-class’ people living in the interior and the noble and 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%) 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 economic growth mainly relied on the central bank’s currency printing policy, commonly known as Quantitative Easing (QE). As you can see, the speed of economic growth (nominal GDP) was lower than the accumulation speed of national debt. In other words, the wealthy used the funds they obtained 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 Department issued debt purchased by the Federal Reserve through quantitative easing (QE), but this time it was not given to the rich, but checks were sent directly to every citizen. Cash did end up in the bank accounts of the poor. Obviously, Jamie Dimon, CEO of JPMorgan Chase, profited greatly from the government’s transfer fees… He is referred to as the Li Ka-shing of the United States, and you cannot avoid paying him fees. The reason why the poor are poor is because they spend all their money on goods and services, and during this period, they did just 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. As a result, the debt-to-nominal GDP ratio in the United States miraculously decreased.

However, Inflation has worsened because the supply of goods and services has not kept 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 total return since 1812. In response, they dispatched Jay Powell, the chair of the Federal Reserve, to raise interest rates at the beginning of 2022 to control inflation, while the general public hoped 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 bills, she depleted the Federal Reserve’s reverse repurchase facility (RRP), injecting nearly $2.5 trillion in fiscal stimulus into the market, mainly benefiting wealthy individuals holding financial assets; as a result, the asset market thrived. Similar to after 2008, the government relief for these wealthy individuals did not bring about actual economic activity, and the U.S. debt-to-nominal GDP ratio began to rise again.

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

Scott Bassett, widely seen as the candidate to succeed Yellen as the US Treasury Secretary under Trump, has delivered numerous speeches on how he plans to ‘fix’ America. His speeches and columns detail the execution of Trump’s ‘America First agenda’, which bears some resemblance to China’s development strategy (dating back to the Deng Xiaoping era in the 1980s and continuing to the present). The plan aims to promote the return of key industries (such as shipbuilding, semiconductor factories, automobile manufacturing, etc.) 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 offer loans to these operational companies, as their profitability is guaranteed by the US government. As these companies expand their operations in the US, they will need to hire American workers. The availability of higher-paying jobs for ordinary Americans means 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 generates revenue through corporate profits and personal income taxes. To support these plans, the government needs to maintain a high level of deficit, and the Treasury raises funds by selling bonds to banks. With the Federal Reserve or lawmakers pausing the replenishment of leverage, banks can now re-leverage their balance sheets. The winners are ordinary workers, companies that produce ‘qualified’ products and services, and the US government, whose debt-to-nominal GDP ratio decreases. This policy is tantamount to super-quantitative easing for the poor.

Sounds great. Who would oppose such a prosperous era for America?

Losers are those who hold long-term bonds or savings deposits, as the yield on these instruments will be intentionally kept lower than 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 is becoming popular again. ‘4 and 40’ has become the new slogan, which means giving workers a 40% raise over the next four years, or a 10% raise each year, to motivate them to continue 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 from those industries. Instead of putting money into government bonds or bank deposits, consider buying 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).

Obviously, my investment portfolio prioritizes Bitcoin, other Crypto Assets, and stocks of companies related to Crypto Assets, followed by gold stored in the vault, and finally stocks. I will keep a small amount of cash in the money market fund to pay my AME X bills.

In the remaining part of this article, I will explain how quantitative easing policies for the rich and poor affect the rise of the economy and the currency supply. Next, I will predict how the exemption of the bank’s 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 show how Bitcoin 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 of articles. I read all of his works while enjoying surfing, Ayangar yoga, and fascia massage during my recent long weekend in the Maldives. 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-shape, and liabilities are on the right side. Blue entries indicate an increase in value, and red entries indicate a decrease in value.

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

Imagine that you are Jerome Powell during the banking crisis in the United States in March 2023. To relieve stress, Powell goes to the racket and tennis club at 370 Park Avenue in New York City to play squash with a billionaire old friend. Powell’s friend is 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 it seems that 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 in the summer when XTZ is involved.’

Jay replied, “Don’t worry, I will take care of it. I will implement a $2 trillion quantitative easing. It 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 over the government again 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 Auction Facility, which is different from direct quantitative easing, to address the banking crisis. But please allow me to add some 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.

1. The Federal Reserve purchased $200 billion worth of government bonds from Blackrock and paid for them through reserves. JP Morgan, as a bank, acted as an intermediary in this transaction. JP Morgan received $200 billion in reserves and credited $200 billion in deposits to Blackrock. The Federal Reserve’s quantitative easing policy caused banks to create deposits, which ultimately became money.
2. BlackRock, which lost government bonds, needs to reinvest the funds in other interest-bearing assets. BlackRock 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 rising, and BlackRock is happy to buy their $200 billion worth of bonds.
3. Anaconda has become an important player in the Capital Market in the United States. They have successfully attracted a user base of 18 to 45-year-old male users, causing them to become addicted to this application. As these users reduce their reading time and spend more time browsing the application, their productivity has significantly decreased. Anaconda funds stock buybacks for tax optimization through issuance of debt, so they do not need to repatriate overseas retained earnings domestically. 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 tend to buy their stocks. The result is that after the nobles sell their stocks, there is an additional $200 billion in the bank accounts.
4. Anaconda’s shareholders do not currently have an urgent need to use this funding. Gagosian held 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 individuals from the same economic class. As a result, the buyers’ bank account is credited, while the sellers’ account is debited.

After all these transactions, no actual economic activity was created. By injecting $20 trillion into the economy, the Fed only increased the account balance of the rich. Even financing for a U.S. company did not result in economic growth, as the funds were used to boost stock prices rather than create new employment opportunities. $1 of quantitative easing led to an increase of $1 in the money supply, but did not generate 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 COVID. Back to 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 typically those who keep things running 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 older people like yourself are at risk of complications from COVID-19 infection. I also want to point out that if they get sick and require hospitalization, treating the entire group of people aged 65 and above will be very expensive. You need to lock down all non-essential workers.”

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

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

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

I want 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 started distributing a new round of economic stimulus funds. To raise these funds, the Ministry of Finance finances through the auction of bonds, and JPMorgan, as the primary dealer, uses its reserves at the Federal Reserve to purchase these bonds. After selling the bonds, the balance in the Ministry of Finance’s TGA account at the Federal Reserve increases. 2. Just like the previous example, the check issued by the Ministry of Finance will be deposited into Morgan Chase’s account by ordinary people.

When the issuance of bonds purchased by the banking system by the Ministry of Finance, it converts the originally useless Federal Reserve reserves into deposits for ordinary people, which can be used for consumption and thus promote 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 to businesses?

In this example, the United States ran out of bullets while shooting a Persian Gulf gunfight film inspired by Clint Eastwood’s western movies. The government passed a bill promising subsidies for ammunition production. Smith and Wesson applied for and won a contract to provide ammunition to the military, but they were unable to produce enough bullets to fulfill the contract, so they applied for a loan from J.P. Morgan to build a new factory.

1. After receiving the government contract, Morgan Chase’s loan officer confidently loaned $1000 to Smith and Wilson. Through this loan transaction, $1000 of funds were created out of thin air.
2. Smith and Wilson built a factory, bringing in wage income, which eventually became deposits for JPMorgan Chase. The funds created by JPMorgan Chase became deposits for those with the highest propensity to consume, namely the general public. I have already explained how the consumption habits of the general public drive economic activity. Let’s adjust this example slightly.
3. The Ministry of Finance needs to fund subsidies to Smith and Wilson by auctioning the issuance of $1000 of new debt. JPMorgan Chase participated in the auction to purchase the debt, but did not have enough reserves to pay off the debt. Since there is no longer any negative impact from using the Fed’s discount window, JPMorgan Chase used its Smith and Wilson’s corporate debt assets as collateral to obtain reserve loans from the Fed. These reserves are used to purchase the Ministry of Finance’s debt for the new issuance. The Ministry of Finance then pays the subsidies to Smith and Wilson, and this funding becomes JPMorgan Chase’s deposits.

This example demonstrates how the U.S. government uses industrial policy to encourage JPMorgan Chase to create loans, and use the assets formed by the loans as Collateral to purchase more U.S. 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:

1. Increasing financial assets for the wealthy, but these assets do not bring actual economic activity.
2. Injecting funds into the bank account of the poor, who typically use the money for consuming goods and services, thereby driving real economic activity.
3. Ensure the profitability of certain enterprises in certain industries, which enables them to expand their actual economic activities through bank credit.

So, is there any restriction on such operations?

Of course. Banks cannot create funds without restriction, as they must allocate expensive capital for each debt asset held. In technical terms, different types of assets all 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 are unable to effectively participate in the bidding for 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 losses exceed the bank’s capital, the bank will fail. Bank failures not only cause depositors to lose their deposits, which is already bad enough, but from a systemic perspective, what’s worse is that banks cannot continue to expand credit in the economy. Since the statutory financial system of fractional reserves requires continuous credit issuance to maintain operation, bank failures may cause the entire financial system to collapse like dominoes. Remember - one person’s asset is another person’s liability.

When the bank’s equity credit is exhausted, the only way to save the system is for the central bank to create new legal currency and use it to exchange the bank’s bad assets. Imagine if Signature Bank only lent to Su Zhu and Kyle Davies from Three Arrows Capital (3AC), which has already gone bankrupt. Su and Kyle provided false financial statements to the bank, misleading the bank’s assessment of the company’s financial health. Then they withdrew cash from the fund and transferred it to their wives, hoping that the 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 plot; Su and Kyle are good people and would not do such a thing :). Signature donated a lot of campaign funds to Senator Elizabeth Warren, a member of the US Senate Banking Committee. With political influence, Signature persuaded Senator Warren that they deserved to be saved. Senator Warren contacted Fed Chairman Powell and asked the Fed to exchange 3AC’s debt at face value through the discount window. The Fed complied, and Signature was able to exchange 3AC’s bonds for new issuance dollars to cope with any deposit outflows. Of course, this is just a fictional example, but its meaning is that if banks do not provide sufficient capital, the entire society will ultimately bear the consequences of currency devaluation.

Perhaps there is some truth in my hypothesis; the following is a recent news article 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 house in Singapore for $51 million, despite the court freezing some of the couple’s other assets.

Assuming the government wants to create an unlimited amount of bank credit, they must modify the rules so that government bonds and certain ‘approved’ corporate debts (such as investment-grade bonds or debt from specific industries such as semiconductor company issuance) are exempt from the 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 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 again 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 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 minimum comfortable reserve level (LCLoR), they will stop participating in the auctions. The specific value of LCLoR is only known afterwards.

This is a chart from a presentation on the financial market’s financial flexibility 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 reserve level (LCLoR). This raises concerns because as the Fed tightens its quantitative easing (QT) and surplus countries’ central banks sell or no longer invest their net export earnings (i.e. de-dollarization), the marginal buyers in the Treasury market 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 cash buyers. They profit from Arbitrage trading, which involves buying low-priced cash treasury bonds while shorting treasury 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 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 balance sheet capacity decreases, the repurchase interest 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 goes against the goal of the Ministry of Finance, as they want to issue more debt at a lower cost.

Due to regulatory constraints, banks are unable to purchase enough government bonds, nor can they provide financing for the Hedging fund’s government bond purchases at reasonable prices. Therefore, the Fed needs to once again exempt banks from SLR. This will help improve the Liquidity of the government bond market and allow unlimited Quantitative Easing (QE) to be used in the productive sectors of the U.S. economy.

If you are still unsure whether the Treasury and the Fed are aware of the importance of relaxing bank regulation, TBAC clearly 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. Based on previous examples, we understand that quantitative easing (QE) for the rich is achieved by increasing bank reserves, while quantitative easing for the poor is achieved by increasing bank deposits. Fortunately, the Fed provides these two data for the entire banking system every week.

I have created a custom Bloomie Index that combines reserves and other deposits and liabilities. This is the custom index I use to track the amount of credit in the US banking system. In my view, this 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 importantly is the performance of assets when bank credit supply is reduced. BTC (white), S&P 500 index (gold), and gold (green) have been adjusted by my bank credit index. The values are standardized to 100, and it can be seen that BTC has performed the best, pumping over 400% since 2020. If you can only take one measure to hedge against fiat currency depreciation, that would be investing in BTC. The mathematical data is indisputable.

Future Development Direction

Trump and his economic team have explicitly stated that they will implement policies to weaken the US dollar and provide necessary funding to support the reshoring of American industries. With the Republican Party controlling all three branches of government in the next two years, they can push forward Trump’s entire economic agenda unimpeded. I believe the Democratic Party will also join this “printing money party,” as no politician can resist the temptation of distributing 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 companies accept government subsidies and obtain loans, bank credit will rise rapidly. For those who are good at stock selection, consider investing in listed companies that produce products needed 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 road to unlimited quantitative easing will be smooth sailing.

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

The stimulus measures for the COVID-19 pandemic have injected about $4 trillion in credit. This time, the scale will be even larger. The rise rate of defense and medical expenditures has already exceeded the nominal GDP growth rate. As the United States increases defense spending to cope with the geopolitics of multipolarity, these expenditures will continue to rise rapidly. By 2030, the proportion of the population aged 65 and above 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 spending, 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 keep things running smoothly. As I have shown before, the combination of quantitative easing and government borrowing has a monetary velocity greater than 1. This deficit spending will increase the nominal rise potential of the United States.

In the process of promoting the return of American companies, the cost of achieving this goal will reach tens of trillions of dollars. Since the United States allowed China to join the World Trade Organization in 2001, 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 companies that plan to diversify their Supply Chain beyond China to countries that are claimed to have lower costs have found that the Depth integration of numerous 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 production. Therefore, relocating 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 ratio of debt to nominal GDP from 132% to 115% cost $4 trillion. Assuming the United States 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 price of BTC may reach $1 million, as prices are determined marginally. As the circulating supply of BTC decreases, a large amount of fiat currency worldwide, not only in the United States but also from investors in China, Japan, and Western Europe, will seek safe-haven assets and buy and hold for the 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”.