SLP467 An Unsustainable Fiscal Path with James Lavish

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James Lavish (Author of the Informationist and Managing Partner of Bitcoin Opportunity Fund) rejoins me on the show to talk about the latest:

  • Shocking US government debt stats
  • Silicon Valley Bank bailout and what it portends
  • Using Bitcoin to stay operational in banking crisis
  • Bitcoin Opportunity Fund

Links:

Sponsors:

Stephan Livera links:

Podcast Transcripts:

Stephan Livera – 00:00:08:

James, welcome back to the show.

James Lavish – 00:02:30:

Thank you for having me, Stephan. Always like talking to you.

Stephan Livera – 00:02:35:

Yeah, it’s a pleasure. Always chatting with you as well. And as we were just joking, there’s not really much to talk about today, is there.

James Lavish – 00:02:42:

Yeah, it’s pretty boring. We can wrap this. We can talk about soccer if you want. Football, Rugby.

Stephan Livera – 00:02:48:

That’s right. Yeah.

James Lavish – 00:02:51:

Coming up, the NCAA,

Stephan Livera – 00:02:53:

See if any of those teams need to bail out. Obviously there’s a lot happening. You were just recently chatting about how the US. Treasury is in a dire situation, so maybe that’s a good place to start. And you were, I guess, commenting a little bit on the Congressional Budget Office as well, and what they’re reporting and their optimistic reporting. So actually, do you want to just start with a bit of an overview? What is CBO? What do they do? Why is this relevant?

James Lavish – 00:03:25:

Right, so the CBO is a Congressional Budget Office and they periodically put out a report and it provides like, budget information and economic forecasts for Congress, right, or to Congress. And they kind of review where the treasury is, how our debt situation is, how our deficit situation is, and our spending versus our revenues, which you and I both know are not really revenues, they’re just tax collections. But yeah, so they had one put out last May, and I dug into that and wrote a couple of articles about the fact that we’re in this situation here, Stephan, where as you and I have talked about quite a bit, that we’re in a deficit situation that has put us into what we call a debt spiral. And it’s just something we can’t get out of. And so looking at that report back in May, we were hoping, well, maybe the Fed manages inflation and we get revenues, GDP production up, and our tax base is strong and they calm down spending a little bit. But pretty much the exact opposite has happened. Inflation has raged out of control. It hasn’t really helped GDP enough to grow our tax base, and spending has gone through the roof. So why has spending gone through the roof? Well, just to unpack it, there are three, basically three mandatory expenses that we have at the US. Government, right. And boy, we’re diving right in, aren’t we?

Stephan Livera – 00:05:05:

Yeah, let’s do it. Let’s jump into it. What are these big expenses?

James Lavish – 00:05:11:

Yeah, so there’s basically three main expenses, right? And they’re called mandatory because they’re either signed into legislation or they’re long term contracts. Right. So the first one is Entitlements, which is the biggest line item, right? So you’ve got Social Security, Medicare, Medicaid, and then you have your defense spending, which we don’t know exactly what that is, but we’ll go through the numbers here in a little bit. And then the third huge expense is interest expense. It’s just the interest on all those bonds that we have. Right. But when you add all of these up, they’re supposed to be under what your tax revenue is. And that way your tax revenue covers your expenses and you get to put a little bit of money away to pay down past debt or something, right. That’s not exactly what’s happening. And I’m sure that a number of your listeners are already quite aware of this. But the bottom line is when you look at our mandatory expenses, you add them all up and this is the entitlement and non defense but when you look at all of our just entitlement expenses, it’s $3.8 trillion, right? And then you’ve got your defense spending, which is somewhere they are saying is about $800 billion this is per year that we’re talking about, right? If you’re looking at the Congressional Budget Report, they’re expecting all in the mandatory expenses to be about $3.8 trillion this year 2023. And then the Discretionary expenses which include it includes defense and other programs. That’s going to be another 1.7 trillion they expected when they were doing this report. Now, remember, this is all lagging because the government likes to lag. They like to look at old data and then put out reports about it. Or like the Fed likes to do, they like to look at old data and then make their policy adjustments or policy moves off of that old data, which as we’re going to see in real time in this train wreckage, that’s not going to work really effectively. God helped the ECB in Europe this morning when they raised rates by 50 basis points. I mean, they’re so far behind the ball, but we can circle back to that because that’s an incredible development. But anyway, all in all, if you add all that up, the CBO is expecting $6.2 trillion of expenses this year, right? Well, then circle back to what they expect. They expect to bring in this year about $4.8 trillion in revenues. Okay? So that’s all of their income, the individual income tax, the payroll taxes, corporate taxes. This includes stuff like the corporate taxes or capital gains taxes all in with penalties and tariff penalties and all that $4.8 trillion. Well, you don’t have to be a math genius to see that 4.8 -6.2 is a negative number a large negative number it’s $1.4 trillion that they expected going into this year. That that’s what the deficit was going to be. Well, the problem is that some people say well yeah, but inflation is up. The economic economic activity is up. Clearly this is going to get better than even their bad forecast here, right? Well, the answer is wrong. First of all the one major line item that we’ve been concerned about we’ve talked about ad nauseam about the last number of months is the interest expense. Here’s the problem, right? We’re operating in a deficit. So as our bonds that we have issued, all right, so all of this debt that we’ve issued to private buyers, to sovereigns whoever owns these bonds we’re paying interest of about somewhere about 75 basis points to one and a half percent on average with all the debt that’s been issued over the last number of years, right? But the debt that’s retiring, right? So the debt that’s maturing. The majority of it has a higher interest rate. I mean, it has a lower interest rate because we’ve been operating at zero interest rate policy zurp for a long time. So we issued these bonds at very low rates. And as a government, we’ve been paying interest at a low rate, right? So the problem is, because we’re operating in a deficit, we have no money in our treasury, we have no capital in our treasury to go and pay off that old debt. If you owned a bond and it matures this month, you bought a bond that’s supposed to mature up to par, which is $1,000. Well, they’ve got to pay you that $1,000 plus all the interest they’ve been paying you all along, right? So they’ve paid you that interest and now they’ve got to give you your $1,000 back, right? It’s in essence what it is. The numbers are a little bit different because some of the bonds are no coupon and whatever, but the essence is they’ve got to give you your principal back. Well, where’s the principal going to come from? They don’t have it. So what do they do? They issue more debt. Yeah, they borrow again. So they issue more debt to pay down the old debt. The problem is that now they’re issuing debt that’s somewhere between three and a half and 5%. Okay? So now you just know that concept. We’re paying higher interest on our debt every single time a piece of debt rolls off the books, right? But we have about and so the next question is, well, how much is rolling off the books? Well, in the next three years, 50% of our debt is maturing. So as we sit here at these high rates, we’re just increasing those interest payments every single month. Every single month we’re increasing those interest payments as we keep the rates high here. That’s one major problem. And so we’re starting to see that the net interest is now expected to be up from $440,000,000,000 up to now $640,000,000,000. And that’s just their current projection, right? It could get worse if the Fed continues to raise rates, obviously. But CBO knows this and they put out these charts, and I’ll give you these charts, so you can possibly put them in your show notes or put them up on the screen here. By now you would have edited this. And you can see this first chart here, and they understand that this deficit is growing and as a percentage of GDP, it’s not going to get any better. Now, they only put it out here, like ten years on this chart, but then look at the next chart, which is the federal debt held by the public, right? As a percentage of GDP, it just skyrockets. They absolutely know that what they’re doing is not working and the debt is going to continue to grow and it’s not going to just continue to grow in nominal terms. It’s going to continue to grow as a percentage of total domestic product, the income base that they’re using to generate payments to these. Right. So this is what we call looking good.

Stephan Livera – 00:13:02:

Yeah. And so as we’ve spoken about yeah, this is the debt spiral and last podcast that we did, we sort of covered some of this. And so I think it’s such an important concept to grasp it’s that effectively it’s running away from the US. Government. Right. Like the amount that they’re going to have to pay is running away. And it’s not easy to outgrow the problem. Right. Like, maybe if we were having this conversation ten years ago, people might have said, oh, okay, look, James, maybe there’s a way we can kind of grow out of this. And there are so many factors coming in. I think another really big important one is demographics. It’s something I’ve been speaking about and thinking about, and I think many of us are talking about this as well, because some of these institutions, they came up at a time when, let’s say in America, the typical family might have been having three or four kids. The typical person might have been dying at 65. Now it’s going the other way. People are living longer, they’re having less kids. There will be less workers to support people in retirement and to pay for the big government and to pay for the big military. Something has to give. Right. And so there’s just this fundamental problem, and I think this is something that you were touching on just recently as well, around how tight this lending market is going to have to get.

James Lavish – 00:14:20:

Yeah. So that’s the problem, is that it’s only getting worse. Right. So you have the interest payments going up and then the treasury, they announced that they’re going to borrow $350,000,000,000 more this next quarter than they expected to. Right. Why? They actually put out a statement that basically said it’s because of lower tax receipts and higher spending. And so they had a cost of living adjustment on the entitlements on Social Security. And then so if you look at it, we’re going to run a deficit of over $2 trillion. Okay. But it’s exacerbated now. And this is kind of just my first take on it before everything happened this weekend with the banking crisis. Right? So now you’ve got these banks who are trying to shore up their own Treasuries and make sure that they’re well above capital requirements and liquidity requirements. What does that mean? That means they’re going to be a little bit slower to lend out their capital, and it’s just going to tighten the belt on the availability of capital to small businesses and people and individuals. And so that, again, it’s going to decrease productivity and then decrease income, which decreases your tax base, and it’s obvious. And that’s going to happen. Right. And it’s starting to happen right now. We just don’t know how tight it’s going to get. And then you’ve got the Fed coming out next week. And all the way up until last Friday, the momentum had been for the expectation it was for the Fed to raise by 50 basis points. But with this liquidity crisis, with a banking crisis, right, people worried about getting their money out. They’re worried about whether it’s actually insured and how much is insured and are their deposits, are they in danger of being seized. And what’s amazing about this is I’m not going to say that I foresaw this exact event happening, but looking at the Credit Suisse situation, I started getting questions about, hey, what happens if Credit Suisse does go bankrupt? What happens to all those deposits? And it’s actually been laid out through the Dodd-Frank legislation. And then the ECB did this as well. And actually the test cases with Cyprus where they seized bank accounts in order to pay off the creditors of these banks when when they were going under.

Stephan Livera- 00:17:12:

Yeah. Speaking of Cyprus yeah. 2013. And you know what’s funny for me is this brings it back, because this is ten years ago. That was actually the narrative for a Bitcoin pump, about ten years ago as we speak. So bitcoin was pumping. It was something like it started the year 2013, I want to say in the teens, it was like $15 or $20 in that range one bitcoin, right? And over this next few months, there was a Cyprus Bail-in and there was a massive run. And now whether or not it was actually Cypriots going and buying bitcoin, that’s probably not really what’s happened. But maybe it was the narrative. And so bitcoin pumped to $260 and then crashed to, I think, $50. Right? And this was all happening ten years ago, around this time.

James Lavish – 00:17:58:

This is the interesting thing. So you’re seeing bitcoin kind of decouple here. Now, as much as I wish it were, because it was actually decoupling, because it’s harder money, it can’t be manipulated, it’s decentralized, it can’t be seized, all of that. They’re really strong important aspects of bitcoin, and I wish that that were the reality of what’s going on here. But this goes back to Friday, when everybody realized, you know what, the Fed is going to have to either stop raising rates or lower rates here. And so bitcoin, it’s been the tip of the risk on asset spear for a while now. And so bitcoin sniffs us out and just takes off before every other asset. Part of that is because it trades twenty four, seven. And over the weekend, people realize, oh my God, the Fed may have to stop here, they may have to pivot. Well, what does that mean? That means that they’ll loosen up the capital and the restraints on risk, on assets. So people would buy stocks, they’d buy tech stocks, they’d buy bitcoin, and they’d buy gold and silver. So it took off. But then as people realize, well, the numbers that are coming in still the economic numbers that are coming in still are strong enough that it doesn’t really give the Fed the ability to stop raising rates here or lower them right now. Because the Fed and the treasury did bail out the banks that were in trouble, and so they did shore up the depositors, and so they kind of quelled that crisis. And so now you’ve got the Fed in a terrible position. I mean they’ve put themselves in a position and they’ve been in a terrible position, but now you’ve got the Fed still trying to fight inflation which is being caused by it’s still a supply side issue, quite a bit of it from what I can tell. And they’re trying to fight it by raising rates. And they’re raising rates on a levered system. The system is so levered that cracks are showing and things are breaking. And so quite honestly, what happened was that bank broke. Yeah. There were things overlooked. They could have done better. They could have had interest rate hedges for your listeners.

Stephan Livera – 00:20:34:

Yeah, I mean we should just kind of go through a little bit of an overview of a little bit of what happened there and it is relevant to bitcoin as well. So I guess there were probably three banks that we’re talking about here. There was Silvergate who were I think they now their cases may be a little bit different because I think they sort of got into trouble and they voluntarily said, hey, we’re going to shut down, pay back, pay everybody back. The next one is Silicon Valley Bank, which is obviously big in the tech VC world. A lot of small companies and startups have their accounts with Silicon Valley Bank and as I understand they essentially had this interest rate risk problem that they had.

James Lavish – 00:21:13:

A lot of these we’ll talk about.

Stephan Livera – 00:21:15:

Yeah, let’s get into that. And then I guess the other big one was Signature, which also got shut down. So do you want to just give us your kind of high level explanation of what went down especially? Well, probably we should start with Silicon Valley Bank or Silvergate.

James Lavish – 00:21:29:

No, we know what happened in Silvergate, but in Silicon Valley what happened was okay, so to super simplify it for everybody, a bank takes in deposits from customers and they could be individuals and they could be corporations, companies. And Silicon Valley, no surprise, has massive accounts from venture capital firms and from entrepreneurial startups, tech startups. Right. So small companies. So they have all these corporate accounts, not individual. So already right there that puts them at risk because each account can take out so much money if they need that capital. Right. So individual accounts and personal accounts are much stickier typically. Right, all right, so what happens? Well, they get these deposits and then they loan out 85% to 90% of those deposits. They loan them back out to other customers right. So they get the money in, they put some aside, and then they loan the rest out. Well, the amount that they put aside to put in their own treasury, right, to put in their reserves, well, they have to do something with it. So what did they do? Well, the managers, the investment managers at the bank, they were watching the Fed and had decided, well, the Fed is telling us that inflation is just transitory. It’s going to be over soon. The rates, if you look back, Stephan, if you look back in December of 2021, the Fed governors, they do their dot plot, right? They plot out where they think they think interest rates are going to be, you know, the average I’m not going to put you on the spot here, but the average dot plot, the average governor and Fed official thought that in a year from then, right? So the end of December, 2022, they thought the interest rates on average were going to be at zero point 86%. So they were off by about 4%, which is which is big. Absolutely unbelievable. It’s four, five times. So they raised rates like Powell put rates on a rocket ship, right? Just raise them straight up. And so banks were caught flat footed. The ones who believe them bought these longer dated Treasuries with that capital and put it in their reserves. So they’ve got these longer dated Treasuries, expecting, well, rates are not going to go up that much. So we don’t have risk because they’re risk free bonds, right? Well, no, you have interest rate risk. And what does that mean? That means if you hold that bond to maturity yeah. It’s near risk free. Why? Because the United States government is going to print enough money to pay off your debt. You’re going to get your dollars back. Right. That’s a 99.999% probability. Right. But if you need that capital before that debt matures, you have to sell it in the open market. Well, what happens in the open market to debt? There’s an inverse relationship between price and yield. Right. So if a bond is yielding 4%, it’s going to be priced lower than a bond that’s yielding 1%. Right. Because to make 1% on the capital that you give somebody, you don’t have to make up so much capital, so the bond goes down in price as the yield goes up. It’s just that inverse relationship. Okay, so what do we know happened? Well, they bought these bonds, long term bonds. We’re talking five years, seven year, ten year, 15 year, whatever they are, and they’re mix of bonds, and so obviously they can’t hold them to maturity if somebody wants their money back. All right? So they go into the market to sell those. Well, now those bonds that they bought that were yielding half a percent, 1%, are now a similar bond in the market is yielding 4 or 5%. Well, how are they if they go to sell those. Nobody’s going to buy their bond at the price they bought them at. They want a 4 or 5% yield. So what does that mean? That means the price of the bond goes down. So they take a loss, a massive loss. And it’s called duration risk. If you plot that out, 7, 10, 15 years, the movement on those bonds is enormous. It’s 20, 30, 40%, depending on the bond. So they got absolutely annihilated when people wanted their money back. They had to sell what they had in their treasury to meet those calls. And then it ended up being that they were selling so many at such a large loss that it became clear that as people were getting more and more worried as companies were getting more and more worried about this and they were all drawing out their capital this is called a run on the bank. And their asset and liabilities were mismatched. They went under. They just couldn’t meet the call. And so the FDIC, the Feds had to come in and seize the bank and take over. And that’s what happened.

Stephan Livera – 00:26:55:

Yeah. Okay. So let me try and just walk that through just to make sure everybody’s following us here. So this bank, Silicon Valley Bank, in this case was taking in depositors, as in individuals and mainly businesses. They’re putting in their money. Now. They’ve got to invest that money. And so they should theoretically be able to redeem when those customers want to because they want to take their money out of the bank. And meanwhile, they had gone a couple of years ago. They had put money into longer term investments where the yield at the time was low, but the price was higher, let’s say. Right. Because they were in an environment where they were expecting the interest rates not to shift so much. Right. And rightly or wrongly now probably wrongly, but for a long time rates have been very low in the US system. And so what happened is, over time, because rates dramatically shifted and the Fed was raising rates so quickly, all of those bonds in the open market, to be clear, if they were going to hold to maturity, they probably would have been okay if they could have if they could afford to do that. But unfortunately, because those bonds in the open market are not worth what they were previously when this bank paid for it, they are now in a position where they cannot meet the obligations of those customers who want to withdraw because they’re scared. They’re doing a bank run. They’re worried about what’s happening.

James Lavis – 00:28:17:

That’s right.

Stephan Livera – 00:28:18:

Correct so far. Right. And so then what’s happened is in the US system there’s this entity called the FDIC. They function as an insurance. Now typically the rule was up until 250,000 is the amount that will be insured or you’ll be made whole as a depositor. So I guess that’s the other big question that we’re seeing now. Is because there’s a debate now saying, oh look, it wasn’t a bailout, it was the depositors being made whole. Right. And so yes, I guess you could say right in one sense, okay, yes. It’s not like 2008. The shareholders were wiped out. The shareholders are wiped out. The executives of the bank are probably going to be in the courts for years. There are court battles being fought about it now probably or will be soon. The question is about should the depositors be made whole? But I think the other important question is what kinds of things does this portend for the system? Because it’s not a free lunch, right. Somebody somewhere is paying for it. And so in the case of the FDIC’s DIF, the Deposit Insurance Fund that is paid for by the account holders at American banks in general. Right. And so if that’s right, the amount of money in the dif gets tapped out. Where do they go when they need more money? They either go to the well they either going to have to charge more premiums to the account holders or they’re going to go cap in hand to the US. Government. And then guess what that’s taxpayer money. Who is having to effectively backstop the system, isn’t it?

James Lavish – 00:29:46:

That’s exactly right. And that they did this test run with Cyprus that’s right. Back in 2013 and ECB loved it. They said, look, we were able to make these Cyprus banks. We were able to bail them in, which means we were able to use depositors money which out there at the time, I believe it was about 48% of depositors, the depositors lost on average 48% of their deposits by bailing in the bank and saving them. Now what they got back was equity in those banks and it was pretty much worthless. Now you flash forward we had that Dodd-Frank legislation and it basically said that the, the government can’t bailout any single entity anymore. And so you had these banks now you’ve got Silicon Valley who they’re not going to get a bailout. Well they got a bail-in which meant that the depositors were going to have to pay for it. They’re going to have to lose anything that wasn’t insured, which anything above $250,000. Now remember this is a place where I think over half of venture capitalist firms are banking at. So you’ve got these venture capital firms that have all this capital here, far more than $250,000. And you’ve got those companies that got their payroll in there, they’ve got their treasury in the bank, they’ve got millions of dollars in there and they’re only going to get $250,000 back. It would be pretty devastating to business. And so I think what happened was the Fed and the treasury stepped in. They saw this and they knew, wow, if we let this bank go under and we allowed the bail-in legislation to follow through that law, we could start a snowball. Effect that would cause runs on other banks, especially small regional banks, and cause the system to literally collapse. And so that’s what their their choice was. Do they do they bail-in or do they step in? And they stepped-in. So what they ended up saying was that in this emergency action, they’re going to backstop all depositors even above their insurance levels. So that basically sent a message to the world that if you deposit your money in a US bank, then you’re backstopped by the US Treasury. That’s literally what they just told the world, which is incredible. It’s absolutely incredible.

Stephan Livera – 00:32:28:

And on one hand, they try to lie and say, look, there’s no impact to the taxpayer. Well, maybe not now, but if it happens again, guess what? Guess who’s on the hook. Because

James Lavish – 00:32:35:

That’s right.

Stephan Livera – 00:32:36:

It’s also common knowledge that the FDIC in their insurance fund only has a tiny percent. It’s like 1% or less than 1% of total bank deposits. So they wouldn’t be able to make it whole if this were to start happening on a more regular basis.

James Lavish – 00:32:51:

So there’s no way to do it unless they print money. Unless they print money. There’s just no way to do it. They wouldn’t be able to charge enough fees to make up for that. It just wouldn’t work. So now what do we see? Well, we see the biggest banks gathering depositors gathering, these company and corporate accounts. Why? Well, go back to the legislation and Dodd-Frank and you know that there are banks that are deemed globally systematic, important banks. Right. GSIB. Right. These are Globally Systematic, Important Banks. What are those? Well, we know that they’re JPMorgan. Bank of America, Citigroup and Wells Fargo. They cannot fail. They will backstop them because they’re globally systematic. So if you’re a business and you’ve got a million dollars, well, are you going to leave your million dollars over at your regional bank, your small regional bank, or are you going to move that to one of these banks to be sure that it’s backstopped no matter what happens? Well, of course you’re going to move it or you’re going to spread it around and that just produces other headaches. But you have basically two choices. You have to either make sure that you don’t have more than $250,000 at any one bank or you have your capital at one of these. And that way so what happens? Well, the large banks get larger.

Stephan Livera – 00:34:18:

It’s picking winners and losers.

James Lavish – 00:34:19:

Power consolidates. It is. This is not true capitalism.

Stephan Livera – 00:34:23:

Yeah. Or more and more people will learn to use Bitcoin. Right. Obviously, there’s an obvious case here where businesses should be thinking from an operational perspective. You should be holding a small amount of Bitcoin in yourself custody. So that way, even if there is a bank run and things go wrong, you can still make payroll, you can still operate.

James Lavish – 00:34:39:

That’s right. Even if the Volatility right. So, yeah, it’s a crazy world. I mean, we’re seeing more things this year. In the last few years, we see something that we’ve never seen before, every few months now. It’s just incredible. But, yeah, the system is fragile. This is not anything that is new. Look, we’ve been talking about the bank of Japan and how much debt that they’ve been buying because of yield curve control. They’re trying to keep their yields down in order to get inflation up. Why? Well, Japan has 250 plus percent debt to GDP. They really have to start paying down that debt. Right, so how do they do that? They’ve got to get inflation up. They can’t have deflation, right? So they’ve got a problem. It’s different, the demographics are different, they’re a net exporter, we’re a net importer, all of that. But the bottom line is, the bank of Japan, we saw them cross that line that no other central bank has ever crossed, where they now own over 50% of their own bonds. So they’re the largest owner of their own debt in the world, which is just incredible. That’s number one. Then we saw what happened this summer when the ECB finally started to raise rates. They finally decided that, oh, we’re going to start raising rates because inflation is up over double digits. They did this in July, right? The rates were still negative at the time and they finally started to raise them. And now we’re seeing that they’re struggling to contain inflation, yet they’re seeing cracks in the system. Right. So immediately after they did that, you saw a run on Italian ten year bonds because investors are worried that the southern countries, that they’re not strong enough to handle the rate rises, and their banks, they’ll suffer from it. So they immediately announced this transition protection tool, whatever that is, instrument A TPI. And basically that’s just saying that they can use Germany’s balance sheet to leverage the system and do yield curve control and just hand the bill to Germany in their target two overnight settlement system. It’s ludicrous, there’s no way to even settle it. So we saw that happen. And then this fall, we saw the UK situation where the UK pensions seemed to collapse almost overnight, which was just incredible. Well, what happened? You have massive leverage in the system. The leverage is so great that these companies, these investment managers, they’ve been so starved for yield that they’re having to lever up these so called low risk or no risk investments in order to get the yield that they need. Right, all right, well, so how does that work? They’re doing these leveraged debt instruments. Why? They’re pension funds and they have these obligations, right? So pension fund has pensioners and they have obligations out in the future. They have huge spreadsheets and they model out everything that they think they’re going to owe in the future, according to people’s age and retirement and all this. Right. But they know what that number is. And when you live in an environment where just two years ago, there were $15 trillion of negative nominal yielding rates in bonds in Europe and you’re in the UK, you’re struggling to get any yield. It’s very difficult to find bonds that have any yield that will help you have enough money in the future, get enough of a return on your investments to meet those obligations in the future. So what do you do? Well, you use a leveraged instrument, a swap, and so these are called LDIs levered debt instruments, and all it means is that they were using these UK gilts and taking that return and multiplying it by owning four or five or six times the capital they put down. So say you bought a bond for 0.5%, right? Well, if you levered that up six times, then you’re getting 3%, right? But remember, you’ve levered it up six times, so you’ve only put down a portion of your capital to get that swap, all right? So if you own a swap, you’re on margin, okay? So now you’ve got all these UK pension funds who have all these swaps. They’re on margin up and down the wazoo, like massive margin on these things. Some were margin down to, like, I think, 5 or 6%. Right? So even lower than that. So what happens? You have a new finance minister that comes in and says, we’re going to have a historic tax break, we’re going to cut taxes across the board, and it’s going to be great. It’s going to generate a ton of economic activity and it’s going to be fantastic. And people say, but how are we going to pay for that tax cut? And he said, we don’t have a plan for that part, we’ll just borrow more. And you saw the UK guilt, which is the same thing as a treasury out in the UK. Sorry, is the UK guilt market just collapsed? People start selling bonds. Why? Well, they don’t want to own something that’s denominated in a currency that’s clearly going to be devalued tremendously because of inflation and because of what the bank of England would have to do is print more money to buy those bonds in order to make up that tax deficit. Right, so

Stephan Livera- 00:40:52:

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James Lavish – 00:43:05:

Well, the US has. We have the benefit, rightly or wrongly, so we have the benefit of being the reserve asset of the world with the US Treasuries. And so if you can’t issue debt in your own currency because it’s not strong enough, then you’re likely issuing it in US dollars, which means that you’re basically using euro-dollar debt, which is more or less selling Treasuries. Right? And so we have the benefit of that, which means that there’s the ultimate confidence in all the fiat currencies, all the sovereign currencies in the world. The ultimate confidence is in the US dollar, it’s in the US Treasury. And so it’s just a confidence game, Stephan, that’s all it is. But because of the confidence game, it’s entrenched in the global financial system and if the treasury collapsed, the entire global financial system would collapse. It’s just simple. Yeah. So what happens? The guilt collapse, they go through margin calls and it just snowballs. And next thing you know, pension funds are calling the bank of England saying we need to be rescued or we’re literally going to be insolvent this afternoon. And it happened like that. Why? Because of leverage, leverage in the system, period.

Stephan Livera – 00:44:24:

And this kind of thing is like very degenerate, right? It’s kind of like another form of what people would criticize of Djen’s gambling on BitMex and things like this. And I think in years gone by or in decades gone by, these pension funds were meant to be very conservative. Right? That was their outlook. That was the way they operated. And so to see even these pension funds go to this level, it just shows you how far things have degenerated and how far things have fallen, isn’t it? It hasn’t.

James Lavish – 00:44:52:

And how quickly something can unwind, just how rapidly I mean, look at Silicon Valley Bank. You started getting whispers of, oh, they’ve got the big mark to market losses on these Treasuries. I better get my money out now before they don’t have enough for everybody. And then that’s what caused a run on the bank. And just in a few days, boom, it’s insolvent. And it happens so fast. And there are other banks like this, and that’s what people are trying to, they’re scrambling around trying to see is Regions Bank, okay, I got to take a look at their assets and their balance sheet to try to figure this out. Normally you’re just, you’re just operating as, as though, well, you’re looking at a bank as an investment. Well, what’s its book value? Like, what what are, you know, what, what kind of income is it generating? It’s just what are their interest rate matches? And you’re looking at it that way, but suddenly you’re looking at, is this thing insolvent? Is it a going concern? It’s just crazy. And that’s where we’re at. And it’s a little bit frightening. And so, yes, going back to your original statement, bitcoin absolutely should be in everybody’s asset holdings. You don’t even have to own that much, but you have to own something in order to have insurance against a total collapse of it all. And because if it collapses, if the entire financial system collapses, so many people will be unbanked and they’ll be moving their assets into something that’s decentralized, that cannot be seized, that cannot be taken over and lost as long as you know your keys. Right. It seems to make sense that this should be Bitcoin’s moment. Will it be? Well, I think the Fed and the Treasury held that off for a bit by stepping in and keeping the system solvent. And we’re going to see though, we’re going to see as people keep hearing this and seeing it, they’re going to be reminded that this system is a lot more fragile than people realize. And it’s all about trust.

Stephan Livera – 00:46:59:

One point. Yeah, that’s right. And I think one thing to add here is that more and more people are now aware of some of the problems with the system. And I think another example is just more and more people are aware of the term fiat money nowadays than, let’s say 10, 15, 20 years ago. It’s now a common term. And now, I think post this recent round of collapses, or almost collapses, is awareness of fractional reserve banking. I think this is actually something where a lot of people were just operating in this world where they just kind of thought, oh, it’s kind of all there, right? Like they were almost operating in this world where they thought it was full reserve, when in fact it’s not. And they did not understand that you are a creditor, right? I think a lot of people don’t think through that concept. They just think, oh, I’ve got $1,000 in my bank account and it’s just magically. They’re ready for me to take it out whenever I want.

James Lavish – 00:47:55:

That’s right.

Stephan Livera – 00:47:56:

And now more and more people are starting to understand this concept. Now, you could argue, okay,

James Lavish – 00:48:00:

They’re realizing that when you say so of a few things, number one, and still people still think this, and it just blows my mind, but they still think that US dollar is backed by gold. So when I got somebody, somebody actually asked me this question. This is not a stupid person, right? They’re professional and executive in this world, but our, our financial education is so dismal and the facts are so obscured that people don’t understand exactly what is going on with the government and money and bonds and all that, right? So this person actually, she said, so to pay for this bailout or saving these banks, to shore up these banks, is the treasury going to just then have to sell some of its gold? And I was like, no, they don’t have the no. So people still think and it actually is not even funny people still think, a lot of smart people still think that the US dollar is backed by gold. It is not backed by gold. Like everybody just listen is not backed by gold. It’s backed by nothing but trust, period. So, no, there’s no gold. We stopped auditing Fort Knox a long time ago. There’s no gold protecting the US dollar. That’s number one, right? So people are starting to understand that, which is really important. And then going back to your other point, which is people are starting to understand that and this is really important, this last week that, oh damn, if there’s a run on the bank, they may not have my money because of what you just said, fractional reserve. And I think sometimes we think that we’re just in our echo chamber here, but enough people filter in to see what’s going on and they read your podcast, they read the title or the show notes, and they realize, hey, maybe I ought to listen to this. Maybe these bitcoiners aren’t so crazy after all. Because we’ve been talking about this bank situation, the debt situation, the leverage situation, the interest rate situation, the Fed, Central Banks. We’ve been talking about this for years now, and unfortunately, a lot of it’s coming to fruition.

Stephan Livera – 00:50:13:

Yeah. If you hang out in libertarian goldbug bitcoiner circles. We’ve been talking about this literally for decades, right? Ron Paul talking about end the Fed, audit the Fed. There have been people looking at US. Debt clock that’s now, just as we were talking about, like, this massive level of debt. And that is not even counting what’s called the Fiscal gap. That’s not even counting other things that are still yet to be paid out in terms of pensions and things like that.

James Lavish – 00:50:41:

Yeah, all of the liabilities, when you add them all up and you look at that debt clock, it’s $200 trillion. Right. But it’s really hard for people to conceptualize, what does that mean? How does that even relate to me? These are what you’re talking about is the unfunded liabilities. How does that even relate to me? Well, maybe my kids will pay it off. We’ve balanced the budget before. Right, but you’ve got three choices. You’ve got three choices in a situation like this. You can either cut spending austerity, right, but that’s political suicide. Who’s going to cut spending? Who’s going to cut spending on what program? You’re going to lose voters no matter what. And we know that policy is shaped by voters, and voters are but policy is also shaped by special interests. So what program are you going to cut to hurt a special interest group that’s going to then not fund your next campaign? That’s really what it comes down to. It’s all bullshit, right? So that’s number one. There’s no austerity that’s coming. I get comments like that all the time. Well, we need to spend less. Good luck. Okay, so that’s number one. Number two is you could raise taxes. You could raise taxes on the wealthy, on the people that should be paying more, or on companies. You could raise a corporate income tax. You could tax unrealized gains. What a mess that would be. That would only serve to what? It would reduce productivity. It just has the same effect in the long term. That won’t work. And then your third choice is to issue more bonds. That’s it. Issue more debt. And that’s the easiest one. And so they keep doing that, keep keep raising the debt ceiling, and we can talk about that if you want. And then finally, if they keep doing that, what’s their next move? Well, their next move is to let inflation run a little bit hotter than everybody realizes. Why? Because if you let inflation run hot, then you get GDP up in nominal terms, right, because the dollars, like, there’s more dollars, the GDP goes higher because there’s more dollars than you tax

Stephan Livera – 00:53:09:

And you’re inflating away the real terms of the debt. So you’re basically making it easier for you to repay the debt by printing.

James Lavish – 00:53:14:

Correct. You’re taxing dollars that are cheaper, and then you’re paying off old debt. So how would you like to have a debt for a bond that you own for 30 years? Right. You buy a bond today for 30 years and it’s going to yield you four or 5%. Okay, well, for 30 years, we all know that real inflation, true inflation, is much higher than that. So what’s the dollar going to be worth if you put $1,000 down today and you get $1,000 back in 30 years? What do you think that’s really worth? Is it worth the interest that you got along the way? A whole lot less, right? So that’s the problem. As people are beginning to realize this, they’re realizing that we’re just inflating away that old debt and that’s where the confidence begins to wane. And that’s why when you get massive countries like Russia sell all their Treasuries and say, I don’t trust that the inflation numbers are right and that this is a good use of my own assets, the oil reserves on my ground, I’m not going to monetize those with US Treasuries and get paid dollars that are pretty much worthless in 10, 20, 30 years. So they completely sold their US Treasuries and our largest buyers are starting to get skittish about that. That’s a problem. That’s a major problem. It’s a confidence problem, right?

Stephan Livera – 00:54:48:

Yeah, the confidence game and I think, as you were, alluding to this factor of US Dollars and US Treasuries being treated as a reserve asset around the world. So in effect, the US. Government has more bag holders all around the world. It’s not just us citizens. And if you have a lot of bag holders, you can print, print, print, printed up more on the margin. You can print more than you otherwise would have been able to. So it’s all part of this confidence game of retaining this image that the US. Treasuries are the risk free asset. And if you’re a rich person, that’s the safest place you can be. And it’s unfortunate because a lot of people around the world today, obviously it’s tough right now out there for a lot of people. They don’t have savings, a lot of them. And so then you look at what are the wealthy people doing, a lot of them think of bonds as the safe thing to hold. They just see it like, oh, I just keep it in bonds. And they are unfortunately, the ones funding the big government, the welfare state, the big military, all of this because they haven’t stopped to think about the broader implications of this system as we’re talking about.

James Lavish – 00:55:51:

And if you pull it down to simplest terms, right, we have a saying on Wall Street if I owe the bank $100,000, it’s my problem, but if I owe the bank $100 million, it’s the bank’s problem. Well, I’m the US. Government in this instance and the bank is the rest of the world, right? So we owe the rest of the world $31.5 trillion. It’s the rest of the world’s problem and that’s what we’ve done. And so now the whole world knows this and they’re like, well, we’ve got to keep it going. We’ve got to keep this charade going as long as we can. And people are being selfish. They’re saying, well, the Jamie Dimon’s and Charlie Munger’s of the world, they’ve benefited immensely from this system. This cantel on effect, the cantillon effect. Right. They’ve benefited immensely from this system. So do they want it to change? No, of course not. And they want to keep the shrade going for as long as they can and make as much money as they can and live the life that they’re living. And that’s the problem. You see the debt clock, you can’t even conceptualize $32 trillion of debt. Like, what does that mean? That’s hundreds of thousands of dollars per. Yeah.

Stephan Livera- 00:57:09:

Yeah. How these numbers are just so astronomical that no person can even really conceive of them. And I think the other question

James Lavish – 00:57:17:

Obviously will never be paid back. We’ll just keep kicking it, keep kicking it down the road.

Stephan Livera – 00:57:22:

And I think the other question I have is we are going to see governments try to obviously maneuver this situation as best they can. Of course it’s a terrible situation and of course the honest way would be government not involved in the money or banking system at all, let it be fully privatized, et cetera. Right. But in practice what it seems like they’re doing is they’re trying to do their best to sort of tinker in certain ways to keep the system alive. So probably a good example is this recent stepping in. As you said, as the treasury stepped-in, they were also saying, hey, you banks, if you have these bonds that are now underwater or at least lower in value, we’re going to loan out to you at par. So we’re going to just pretend that it’s worth. So do you want to just explain a little bit about that program and how it basically helps kick the can?

James Lavish- 00:58:17:

Yeah. Okay. So now that’s right. There’s so much wrong with all this. So what they’re saying is that if you’re the Silicon Valley, the Silicon Valley Bank in this case, in this case and you’ve got all those bonds that you bought that are now underwater because they’re worth less in the open market. So instead of being forced to sell them in the open market, the US Treasury has opened a line where you can place deposit those treasuries at the US Treasury and they’ll give you full par. They’ll give you full. Face value back for it that you can go use to continue your operations in order to make sure that you get the full value back. But in reality that’s just saying that now that’s just putting more money in the system because those treasuries shouldn’t be worth anything more than what the market is deeming them to be worth.

Stephan Livera- 00:59:23:

Willing to bet. Yeah

James Lavish – 00:59:24:

Exactly. So by giving them back to treasury. The treasury is then printing money to give you money to go back into the market with full value. So if they were only worth $0.70 on the dollar, but they give you 100 cents on the dollar, well, that’s $0.30 that they just put back into the market.

Stephan Livera – 00:59:40:

Right. And if you make this point, then they’ll say, oh, no, they’re not printing. They’re just loaning. It’s just a short term loan, right?

James Lavish – 00:59:46:

Exactly. And so it’s actually incredible. It truly is. It’s incredible. It’s just more leverage, more money printing, and every single road leads to the money printer.

Stephan Livera – 01:00:05:

Yeah. And I think that’s the point. And I think one other interpretation that I think we could put here, or one interpretation we could take here is look at how popular MMT, rhetoric is becoming. Modern Money Tree, or Modern Monetary Theory, as they like to call it. That kind of rhetoric is becoming very popular. It used to be a very fringe way of mode of thinking. It was like this crazy school of thought 10, 15 years ago. Now, all of a sudden, there are some very popular figures promoting this idea, and I think we are slowly but surely stepping in that direction where, okay, at the start, they try to maintain this facade that the system is legitimate and that there’s this Federal Reserve and the private banks are doing the lending and et cetera. But eventually it’s going to become more and more you know what we just need to print. And I think what’s going to happen is the situation gets worse and worse and worse. And I’m not saying it’s all going to blow up tomorrow, right. This is a slow collapse. I think they’re going to eventually get to a stage where they say, look how bad it is. We just need to print. We just need to directly print. And all the while, they’re going to deny. They’re going to say, no, we’re not monetizing the debt. No, we’re not printing. No. And eventually the narrative will shift. The urgency, let’s say, will be seen as, oh, no, look how bad it will be if we let this fail. And that let us print.

James Lavish – 01:01:26:

Yeah, I think you’re exactly right. I think it takes a long time here in the US. It takes a long time for us to get to the point where we do have an all out jubilee. But I do think that you’re exactly right. And so what will happen is we’re putting these Band AIDS, we’re plugging these holes in the dam, and we’re just avoiding the reality of the system cannot continue to operate like this in perpetuity. That’s the reality. The treasury has admitted as much. And they put out a chart, and I put it in my Tweet thread yesterday. They put out a chart, and Lyn Alden, God bless her, she’s the one who sniffed this out first and alerted me to it. But they. Put out this chart in this report about their 2021 fiscal report, and the subtitle of the report was an unsustainable fiscal path. Like, they know it’s unsustainable, and they put out this graph, and you can put it up here. Now, I’ll give it to you, and it literally just look at how it propels straight upwards. And this is even in my mind, it’s optimistic, but it’s going in the hundreds and hundreds of debt to GDP, percentage wise, and it’s ludicrous. So the next time that we have a major event, the next time we have a 2008 crisis or the next time we have a Long term Capital Management crisis, or the next time we have a banking crisis, a real one, that they don’t step in fast enough, they don’t eliminate the imminent danger immediately with the printing is going to be breathtaking. It’s not going to be $7 trillion. It’s going to be in the 20s. It’s going to be something just unbelievable, and our debt to GDP is not going to be our debt is not going to be $31 trillion. It’s going to be in the 50, 60, 70 range. It’s going to be unbelievable. And we just keep saying this, and people are not listening. They want to believe the MMT rhetoric and believe that it’s all it’s going to be fine. Don’t worry about it. I’m worried. You know why I’m worried? Because I’m worried for my kids. I’m worried that my kids are going to wake up in 40 years and go, wow, I’ve been working my whole life. What do I have to even show for it? They take everything. They take everything, and they bleed it away with inflation, taxes, irresponsible spending. They just bleed it away. And no matter how hard you work, you’re impacted by this money printing, the expansion of the money supply, and inflation, period. So what do you do? Well, I’m buying bitcoin. I’m buying bitcoin.

Stephan Livera – 01:04:27:

Well, yeah, you have to opt out, right? I think it’s tough to get people to see, because for a lot of people, they seem to think, oh, it’s a matter of getting the right leader. It’s a matter of this one new program.

James Lavish – 01:04:37:

We see one more regular Democrats. They’re all on the same team. Well, okay. And I’ve given this example before, man, when I was in college, and afterwards, and we’re playing hockey, ma’am, we would just kill each other on the ice. I mean, we’re just, like, pounding each other on the ice, right? Hated each other. Absolutely. Vehemently hated each other. Then when the game was over, we’d all go down the street, and we’d go to the pub or the bar, and we’d all crowd around, hugging high fiving, having beers together, because the reality is, it’s still just a show. It’s just a big show. So we’re on separate teams, but we’re all on the same show, and that’s exactly what it’s like in Congress, in the Senate, in the White House, in the Fed, in the treasury, they’re all in the same show. It doesn’t matter. Politics suck all the way around. It doesn’t matter. So you opt out. I hope that we do get some sort of parallel system going here. This is my hope. My hope is that incidents like this, what’s going on out in Japan, what happened out in the UK, it wakes people up to the fact that we do need an alternate system, an alternative system. Bitcoin is that system. Keep growing that network, get a billion people on the bitcoin network and start using it regularly, using the Lightning Network payment system, storing their value in it. And then you’re not afraid of an all out collapse because you’ve got an operating system that you can move to. And I’ve talked to Jeff Booth about this quite a bit, and I think that’s his hope, too, is that we get this system up and going and it’s parallel, and then people can opt into that and not be devastated from the other one. That’s the hope.

Stephan Livera – 01:06:38:

Yeah. And James, while we’re here, I also wanted to chat with you a little bit about the Bitcoin Opportunity Fund. So tell us a little bit about this. As I understand, this is for high net worth investors, and maybe if you could help explain for people, I guess the common question might be, hey, why not just hold bitcoin, right? What’s the point of this?

James Lavish – 01:06:56:

I think everybody should own some bitcoin, period. That’s the first step. You should own some bitcoin. And if you don’t yet, that’s where you should start, quite honestly. But as far as why Bitcoin Opportunity Fund on top of that, well, the bitcoin network is going to grow rapidly, in our opinion. Okay, so let’s step back first. Who is it? I’ve got a number of partners. It’s David Foley, who is Larry LePard’s longtime partner in his fund, and me are the managing partners. Then we’ve got Greg Foss, Larry LePard, Mark Moss and Cory Klippsten from Swan. We’re all partners in this, but David and I are the co managing partners. So we’re managing the portfolio and the day to day and the investments. Okay, so that’s number one. But our mission is and we put together a little statement, and it’s basically the Bitcoin Opportunity Fund helps high net worth investors who are seeking to generate higher risk adjusted returns. And that’s the important part to your question. It helps them generate higher risk adjusted returns, diversifying into the bitcoin ecosystem by focusing on both public and private opportunities. And so the point is that our goal is to deliver higher risk adjusted returns over a longer long period of time, seven to ten years. But we’re investing only in bitcoin ecosystem opportunities, and we are investing in both public and private. What’s great about this, though, is that, look, it’s been rough out there with FTX, Celsius, the debacles, the fraud on the mismanagement the lack of risk management. There’s been massive fallout from that this last year. But that puts bitcoin, who’s been stung by that contagion, it puts bitcoin in this opportunity set with distressed companies, the mining companies, some of the smaller ecosystem companies, payment companies, wallet companies. It puts them in this position of being distressed where they don’t have the capital to operate that they thought they did or they expected to have. And so they need that capital, that capital injection. And so this is a perfect time for us to come in and get some of these assets, some of these companies, some of these series b, or even some series A down rounds, where they have to raise capital at a much lower valuation of the company, which means you get more equity for your investment. It’s good timing. And we can help the ecosystem. We can help these companies. We can gather capital and help the companies that we believe have strong risk management, have strong entrepreneurial spirit and good leaders. And with our network, we’re pretty excited. We’re we’re super excited. And anyway, so anybody who’s interested, you can, you can find out more, you know, you can find out more information, get more information by going to bitcoinopportunity.fund and just a test that you’re accredited and you can see our webinar and we’ve got a tape of it there and you can get some more information. We’re happy to talk about it, but, yeah, we’re excited to do this. It’s a good time.

Stephan Livera – 01:10:41:

Yeah. And just to touch on the public and private markets aspect. So I presume that could also potentially mean like, even the public bitcoin miners. And then on the private side, it could even be some of these earlier stage bitcoin companies. So presumably the idea is, you believe, let’s say you’re bullish on this bitcoin company and you think, hey, look, in ten years time, it’s going to be a big part of the bitcoin ecosystem. It’s going to be so much bigger, and therefore, let’s try to get some. Now that’s basically the thesis, right?

James Lavish- 01:11:13:

That’s right. But we kept it wide open in the types of investments we can do for that reason, because the bitcoin ecosystem is early stage all the way to later stage. Later stage companies or the public ones are mostly miners, right? And so some payment companies. But the things that we could do there is it’s not just buying equity in the market. We could buy debt of some of these struggling companies that’s trading pennies in the dollar, know that even if they’re unsecured, they have claims on assets that are big enough that it makes sense to buy that debt at these prices. And then what we can do is we can short some of the common equity against it in what we call a delta hedge. And that way we can manage that downside risk. And even if the company goes bankrupt, even if the company goes out of business, we can still make money on that trade. And that’s the idea is for us to lower risk with that ability to short. And so that’s really important. And then the private side going back to the miners, we can buy miners the ASICs for a fraction of what they were selling for just a year ago and we can buy them out of bankruptcy proceedings. And we have strong relationships with power companies and places to actually plug these in in a way that we’re not just buying the power, but we’re actually integrated with that company in order to align our incentives. And that’s important to protect ourselves from being unplugged or shut down because of the pricing opportunity of energy. Yeah, again, I think there’s a huge opportunity here. We’re super excited. That’s about all I can really say about it publicly, but those are the types of things we’re looking at and we’ve gotten really strong interest and excitement around it. This is a good time.

Stephan Livera – 01:13:25:

Fantastic. Okay, cool. So yeah, I guess final question, any thoughts in terms of the outlook over, let’s say short to medium term? I guess just looking at the macroeconomics of things, do you think they just try to kick along as much as things can or do you have any view on whether the Fed really has to do this big about turn and pivot? What are you looking for there?

James Lavish – 01:13:48:

Well, I think that they’re in a heck of a pickle, right? Because we still have inflation that’s running hot. They can’t let inflation run out of control because that would destroy confidence in the US dollar and then the treasury, they can’t let that happen. So they don’t have a tool to protect the treasury if that happens. However, they do have tools to protect the treasury and the dollar if they tighten too much. And that’s QE, Quantitative Easing, printing money monetizing bonds, injecting liquidity into the markets to spark it and to regenerate some economic activity. And they can lower rates in order to do that. And so those tools allow them back to the money printer, allow them to do this. So what do I think? I think that the Fed is going to continue to tighten. I think they’re going to raise, unless something happens between now and next week, they’re going to raise another 25 basis points. And then I think if we get at least some positive movement in the CPI number, which they manipulate, we know they do. But if we get it to the point where it looks like it’s coming down closer to that 4% to 5% level, then they may just back off and say, okay, now we’re at a rate that is above the neutral rate, which means that it’s tightening policy, it’s tightening the screws on the economy. And so if we hold the rates here, the economy will continue to slow. And so that’s what they’ll do. However, I think they’re looking so far in the rear view mirror that we’re not even seeing the effects of the rate raises two meetings ago. So we’re just now starting to see the effects of those. And you’re going to start seeing in the housing market, you’re seeing it in jobs, you’re seeing it the wages aren’t keeping up. So I think it’s going to be a rough ride, to be honest, through the rest of this year. And we’re going to hit a spot where we’re in a recession and then the Fed will have to pivot when that happens. I don’t know. At this point, I would have thought they’ll pivot and start lowering rates early 2024, but it may be 2023 now with what we’ve seen in the banking and with that pending crisis. And it all depends on what happens next. We’re not out of the woods yet on that. We’re not quite out of the woods on that. So I’m watching closely. But I’m also adding Opportunistically bitcoin. If it gets crushed and it goes back under 20,000, I’m adding I’m also adding to gold and silver just because I’m a risk manager, but I add physical, either in vaults or in ETFs that are audited with the right amount of gold or silver in their vaults as claims against those ETF certificates. So I just caution people. I think that it’s going to be a rough ride. That’s my personal opinion. And it’s all a probabilities game and I just think there’s a higher probability that we go into a recession than there’s not. And so that’s kind of my outlook right now.

Stephan Livera – 01:17:22:

Yeah. Well, thank you for joining us and explaining some of these concepts for me and for the listeners, and we’ll chat again soon. Thanks, James.

James Lavish – 01:17:30:

Yeah, of course. Awesome to be here and always good to talk to you.

Stephan Livera – 01:17:33:

So I hope you enjoyed the show and of course, make sure you share this one with family and friends who are in denial about the problems of the fiat monetary system. I hope this episode helps explain some of the key concepts that we as bitcoiners tend to understand but are perhaps not being listened to. And I think James has a particularly good way of articulating some of these problems. So this is a great one to share. Get the show notes over @stephanlivera.com/episode/467/. Thanks and I’ll see you in the Citadels

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