Gold To $7,000 In Dollar Crisis (Uncut) 04-22-2025

People Don’t Realize ‘How Bad This Could Get’; Gold To $7,000 In Dollar Crisis

We’re increasingly looking like we’re cooked. I’m waiting for consensus to realize how cornered we are, and I don’t see it yet. If you view the United States as an empire, like the Roman Empire, then with the interest payments, you know, plus on debt, greater than military expenditures, you’re typically at the, you’ve crossed the Rubicon where the US era of global dominance is over.

It’s another big down day for the stock markets today as the S&P 500 drops 3%. The Dow is down more than 1,000 points. Gold is up 3%.

It’s now trading at over $3,400 an ounce. Bitcoin is interestingly up 3% as well, diverging from the stock markets. We’ll talk about that as it’s trading now in line with gold.

Donald Trump, President Trump is now doubling down on his rhetoric against Fed Chair Jerome Powell. He’s now calling him a major loser on truth social, insinuating that if Chair Powell does not cut interest rates anytime soon, there may be trouble ahead for the economy. What kind of trouble are we looking at? We’ll find out with the next two guests, Luke Grohmann and James Thorne, popular guests on my show.

Luke is the founder and president of Forest for the Trees. James is the chief market strategist at Wellington Altas Private Wealth. Both have been on my show previously.

You can check out their individual interviews with me in the links down below in the description. It’s an honor to have both you, Jim, and Luke together on the show together at the same time. Thank you for joining, gentlemen.

Welcome to the show. Thanks for having me back on. Yeah, thanks for having me.

Okay. Well, I’m getting a lot of warnings that the US dollar is in danger. In particular, the status as a global safe haven asset is under threat.

You can see this by the decline in the DXY in the last couple of weeks. Typically, well, in the past, not typically, but in the past when Trump has escalated tariffs, the dollar has risen. Not so much this month.

Capital outflows are the name of the game for the dollar. What is your read on what’s going on? Why is capital leaving the dollar? Why are bond yields for the 10-year yield going up while yields for other bonds from other countries going down, as an example? Luke, I’ll start with you. I think ultimately, because that’s what the Trump administration wants, if you believe what they’ve been saying, which is if you go back to the late January, Trump came out and the sentiments were echoed by Besant, essentially saying, I would like to reverse the flows of capital and trade as they have defined the last 50 years.

He said that by virtue of saying, I want to finance via tariffs, not income tax. Then they doubled down in February, which I think is still maybe one of the more underappreciated documents from the US government in years and maybe in decades. Late night, February 21st, Friday night, Trump came out with the America First Investment Policy Memo.

If you read that, it is basically, China, take your money and go home. Foreigners, take your money and go home. When you pair that with the comments from Stephen Myron, of course, he wrote this missive about reordering trade in November of last year.

He has since disavowed that, but not really. More importantly, he stood up in front of the Hudson Institute a couple of weeks ago and basically reavowed that statement. What they all appear to be doing is saying, look, the way the world worked for 50 years was we send our jobs and manufacturing facilities offshore.

You guys send us stuff, we send you dollars, you recycle those dollars into US financial assets and in particular, treasuries, and more recently in the last 10 years, the stock market and mag seven. What Trump is saying is, look, we do not want you recycling these into financial assets anymore. We are happy to have your capital if you want to invest in American infrastructure.

We are happy to have your capital here if you want to help rebuild factories. We do not want you bidding the mag seven from 50 times sales to 100 times sales anymore. We are going to start raising the cost of carry on US financial assets and in particular, treasuries.

You can read in this document from February, they’re talking about reinstituting a sales tax or a tax on treasuries that had not existed for China for a long time. They’re talking about different foreign taxes on foreign investment into US investments. They’re basically telling foreign capital get out of paper assets.

One last thing they told people that I don’t think was well understood was they tariffed everything. They tariffed an island with penguins on it apparently. The one thing they didn’t put tariffs on was gold.

When you put the pieces together without them coming out and saying it explicitly, they’re saying, listen, take your money, invest in our factories and our infrastructure and our workforce, or put it in gold. Our deficits are no longer going to be allowed to accrue in our financial markets without a tax on them. What you’re seeing as an end result of this is this money is leaving.

I think that describes a lot of the price action, which is NASDAQ down, stocks down, bonds down, dollar down, gold up. I think we’re in the second pitch of the first inning of this. Unless something drastically changes, I think this is a tectonic sea change that I think people waiting for it to revert or might be waiting a while.

James, I’ll let you respond to this tectonic sea change that Luke is referencing. What does the sea change look like? Going back to my original question, what would this mean for the dollar as a safe haven asset? Well, I think what we’ve got now is I’ll call the official sector realizing that we need to rebalance. When the Brookings Institution comes out with a paper saying we need to rebalance, they may have a problem with how President Trump and his administration is doing it.

But none of this, as far as I’m concerned, should be a surprise. Keynes warned about this at Brentwoods. Harry Dexter White took the US dollar and tied it to gold and said that the global economy was going to rebalance through WTO or GAAP.

We know that doesn’t work. We’ve got an extremely unbalanced global economy. As I’ve trained as an economist, one of the things that I come up to is that the global economy is closed, which means deficits and surplus must equal.

There is a special place in the world for that economy or the economy that has the currency that is the medium of exchange of the global economy. It really means over time, and Keynes warned us, that the United States is going to go from a creditor to a debtor nation. They’re going to go from a manufacturer to a consumer.

Their standard of living was going to fall and the rise of populism was going to happen. We’re here. We can argue about the weak dollar.

I completely agree with Lou. I think the first step in getting out of this is having a managed decline of the US dollar. That’s how I view it.

Why it’s happening, I don’t know. As I get older in my life, I say that’s the first leg in the stool. We need interest rates down and we need commodity prices down, specifically energy.

Then can we make debt sustainable? I think Lou has touched on this in some of his work. I think there is a significant difference between weak dollar and the US dollar system. I really suggest that I do not see a new US dollar system.

I think we’re going to get what the stable coins in Bitcoin. We’re going to get some type of solution. Looking at the movement in the yields over the past couple of weeks, I think what’s interesting is I would suggest that the bond market that we’re dealing with today is not my grandfather’s bond market.

You have a lot of hedge funds playing out in that space. I think a lot of them were levered up to try to basically front run deregulation, specifically the supplemental leverage ratio, which would have allowed basically banks to go back in and somewhat act the same way as they did before Dodd-Frank. There’s another demand for US treasuries.

How this is evolving is I see everybody’s upset. I would argue and I would submit because as I get older in my life, I sit there and I say, what’s the game? I think if we had another participant here and his name would be Scott Besent, everything that Luke and I just dropped on you, he knows. You’ve got some really smart people dealing with this.

The decline in the US dollar, the Dixie, I think is exactly what we need. Now we got to get the decline in US treasuries. We’ve got to get that to a level so that it’s sustainable.

Then I would argue what we need to do using World War II as my reference point. I think we need to get nominal GDP higher than inflation, higher than interest rates. We’ve got to grow our way out of it and that’s what we did after World War II.

Do I like the volatility? No. Am I surprised? No, but it’s somewhat evolving the way that I thought it would, having this thesis for such a long period of time. today’s sponsor.

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How do we boost nominal GDP? Just a little bit. Inflation is possibly going to be higher than people would suggest. Once we get through this period of time where the growth in the United States that was juiced by President Biden’s fiscal spending, we have AI, we do reshore a little bit in the United States.

I don’t think there’s a major amount that they can do. I think it’s critical infrastructure. We grow, get interest rates down.

There is some demographics, housing, and we just start to grow out of this. I also think the other interesting thing about it is the fact that when you think about the trade deficit, the only thing that Trump could really do, and I could be wrong, is the fact that when you’re talking to a government, you’re really talking about purchases of natural resources. China, LNG, what have you.

A lot of the deficits and surpluses that have been developed between the United States and the rest of the world is created by the private sector and the supply chains. I just don’t see that unwinding in 90 days. I take the different view that A, the cent knows what he’s doing.

Yes, it’s very dangerous and critical. Yes, we need to deal with the debt, but I think the cooler heads are going to prevail. Really, what I’m looking at is what does this thing look like five to six quarters of.

I’ll stop there, David. Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. He is a licensed financial professional both in the U.S. and Israel.

He is also the co-founder and chief financial officer of Profile Investment Services. Speaking of debt, Luke, I’ll pass this over to you first. There’s another U.S. debt downgrade warning.

This comes from S&P Global Ratings. The outcome of the U.S. government’s budget process and policy negotiations over the coming months will help determine policies that inform our view of U.S. sovereign credit worthiness. As S&P said in one of the recent reports, these discussions could affect our view of the U.S.’s fiscal profile.

Would you be surprised if we get a debt downgrade this summer, Luke? No. I actually would probably be surprised if we don’t get one. Okay.

What would be the main catalyst behind a debt downgrade, do you think? I mean, I think it’s ultimately a combination of factors of, as we stand today, the trailing 12 months through February. I haven’t added in the March numbers yet that just came out. But through February, trailing 12 months, the U.S. interest expense plus entitlement spending alone is over 100% of receipts.

And receipts are all-time highs. And receipts on the margin are highly influenced by stock prices. So with what stock prices have done, receipts are going to fall, I don’t know, probably 5% to 10% in the next 12 months.

So you’re going to have a U.S. federal government that’s going to easily have true interest expense. It’s interest and interest-like obligations that are 115%, 120% of receipts that are falling. And that’s if we don’t have a recession, which is increasingly looking likely given the disruption that is evolving with the trade war.

If that’s the case, if we actually have just a plain vanilla recession, we could easily be at 120% to 130% of receipts on interest and interest-like obligations relative to receipts. And that is in no way, in no world is an entity that whose interest and interest-like obligations are running 120% of the receipts, that’s junk. That’s highly speculative junk.

It’s not AAA. So that’s, like I said, I think it’s inevitable. And it’s also why I think in the next crisis, or as we evolve, I think it’s why treasury yields are going to keep rising until they are forcefully capped one way or another.

Okay, James, similar question. I’ll let you respond to this dead downgrade. But more importantly for the markets, if we do get a downgrade, like Luke mentioned, will yields rise? Do you agree with that forecast? There will be a shock to the system, definitely, like it was the last time they’ve been downgraded.

But I think Luke hits the nail on the head, right? We’ve got interest expense. It’s unsustainable. Something has to happen, right? And in Besant’s testimony when he was being confirmed, he even acknowledges, I try to trick myself and come up with these narratives knowing that they’re wrong.

But if you view the United States as an empire, like the Roman Empire, then with the interest payments plus on debt greater than military expenditures, you’ve crossed the Rubicon where the US era of global dominance is over, right? And so, I agree with everything that Luke says. The only thing I would give a caveat to is, I don’t think it’s as unique a narrative as we think it is. And I would suggest to you that we need to get interest rates down.

I think it’s going to be very interesting to see how we deal with the debt. I don’t buy in to the Austrian school narrative, right? Or here’s the other, I don’t buy into, look, if we go back and we know that the global economy is closed, and we know that there are periods of time left to their own devices that it gets significantly unbalanced. The way that we dealt with that previously in history is through war.

We’ve wiped out the excess capacity. Really, that’s what happened in World War I, and you can think about that in World War II. This is the first time in history that we’re dealing with excess capacity, which we’re not basically trying to reconcile it with a world war.

And so, it’s going to be very unique in how we do things. It’s going to feel absolutely terrible. And I don’t know, I’ve been at this game since the mid-90s, right? And the majority of people that I talked to weren’t in the business in 2008.

And I’m not saying that as disrespectful or anything. I just look at where we’re going, and we really have to ask ourselves the question, are we basically rudderless and flying the plane into the side of the mountain, right? One, or they know what they’re doing, and if they do know what they’re doing, are we going to get a new Plaza Accord? Are we going to get a new Brenton Woods? Is Trump going to reverse course quickly? Does he understand the errors of his ways in the Rose Garden? And what does it look like going forward? And so, I have sided on the view that, you know, Luke may be right, but if rates go higher, that is possibly the last nail in the coffin over the short period of time, because we just can’t afford, given the level of debt globally, to have higher interest rates. Luke, I think you told me last time you were on the show, which was September 2024, that you can see yields going, the 10-year going back up above 4%.

You know, it may not be this year, but actually, if we’re looking at the 10-year yield, we are currently at, yeah, I mean, it’s kind of moved in the same direction that you’ve anticipated, we’re above 4%. When you were giving me this forecast, we were still at, you know, 3.7. What’s your outlook on the 10-year now? I think it is ultimately going to go to the level, it’s going to go higher to the level that creates another round of dysfunction. And I think that might be 4.6%, maybe it’s 4.8%. At any rate, I highly doubt it’s more than 5%.

And at that point, I think we’re going to get some version of what we got, you know, to Jim’s point after World War II, which is either outright explicit yield curve control, which I think will be the last option. I think they really want to avoid that, because they’ll have to buy the whole bond market, because, you know, they could cap yields on treasuries, but then, you know, spreads on mortgage bonds will blow out, so they’ll have to buy all of those. And then spreads on long-term corporate bonds will blow out, so they’ll have to buy all of those.

So ultimately, I really think they want to avoid doing explicit yield curve control. So I think you’ll start to see more instances of, you know, soft, you know, start with jawboning, right? And I think we’ve already gotten the jawboning. When we saw the 10-year go to 4.5%, we had in the span of 72 hours, we had Bessant, no, sorry, we started with the Fed on Friday, not last Friday, but two Fridays ago.

Boston Fed said, we will absolutely get involved with the bond market if it keeps acting this way. You had Bessant talk about it on Sunday, I think, on Meet the Press. You had Waller talk about it on Monday at the Fed saying, hey, you know, it’s like the tush push, we just, inflation is transitory here again, let’s just try again.

And then you had the number two at Treasury, I can’t think of his name, but at any rate, saying that they are having discussions around the bond market and suspension or exemption of Treasuries for SLR again, to Jim’s point. So that was the jawboning of the Treasury market. And sooner or later, you know, markets are what they are, they’re going to test these policymakers, because the fundamental supply demand, particularly given what we’re seeing, which is the policy of this government is saying, take your money and go home, that’s going to continue to put downward pressure on dollar, downward pressure on selling pressure on bonds, upward pressure on yields.

As the economy slows, as the stock market falls, Bessant is going to have to come out and say, well, you know, that QRA, the quarterly refunding, the amount we’re going to borrow in the third quarter and fourth quarters is actually a lot more than we thought. And it’s something, one of these things is going to trigger, I think, us up to that 4.5, 4.6, maybe a little higher in the tenure. And then they’re going to get more explicit.

They, the policymakers are going to have to get more explicit with yield curve control. However, that looks like it probably won’t be called yield curve control. My guess is it’ll be something around, you know, Treasury market functioning or something like that.

So it doesn’t, it doesn’t sound like they’re printing the money to finance the government, but that’ll be essentially what they’re doing, which again, is fine. We’re in the middle of a restructuring. This is how this goes, you know, and the, you know, Jim had a great point about the end of World War II.

I put a chart up yesterday on X that shows that in the 10 years after World War II, real rates around the world, the least negative real rate was the America, was America at negative 14%. The losers in that war had negative real rates that bottomed at negative 60 to 70%, six zero to seven. So basically they inflated the debt away really fast.

And so we’re going to do some version of that. And that’s how I think it’s ultimately, that’s what they’re going to have to do. So I, to me that the level of the 10 year is less interesting than the ultimate level of where real rates bottom at.

How negative are they? How many double digits is it? I think it’s going to be at least negative 10% for a span of years in the West. Okay. Jim, I’ll let you respond to that.

You’re outlook for yields. Oh yeah. I, we need to get negative rates.

Right. And I think the real rates and I think, you know, you look at, you look at where we are relative to the Fed and the PCE. I mean, it’s, it’s silly where they are.

Right. So we need to get, we need us. So when you think about David, when you say, you know, when, when, when inflation is, is, is greater than the interest rates on for like, say the overnight rate, that’s negative rates.

We need negative rates. There’s no two ways about it. Right.

And so the only thing I would disagree with and, and, or not, it’s not a disagreement is, is you ask the question, well, look, here’s the thing that the fly in the ointment for me, it was the fact that what is interesting about, and Luke brought it up is, you know, with what was said late February is look, if, if the president really wants to do this, if this is what the states want, then this cannot be done through an executive order. And what needs to happen is he needs to basically, you know, this is unconstitutional, actually, right. The power of the purse, if you think tariffs, tariffs are a tax, the power of the purse goes with the house in the Senate.

Right. And so if you look at it that way, you know, why, what, you know, why are they doing this? Why are they basically wanting the market to correct and to have an exacerbate the growth? Well, why not front end load, economic growth, slowdown, and a correction, get everything out of the way in the first hundred days, and then have a real strong economy and stock market and financial markets going into the midterm elections with the hope of getting 60, you know, getting that 60% or 60 seat majority in the Senate, given the fact that that you’ve got AOC and Bernie Sanders and the Dems blowing up. And then you really go for the gusto and you actually put this into law.

Right. Because, you know, even Brookings is coming out with the vaccine. Guys, guys, guys, these are EOs in this.

He’s way over the ski saying that, look, I’m sorry, David, Luke, right? Quebec cheese is not a matter of national security, right? Quebec milk isn’t a matter of national security. I get the H20 for NVIDIA and the Hopper, right? And AI. So I am looking at this, asking the questions, why are they being so toned down? Well, maybe what they’re trying to do is they’re trying to basically, you know, short circuit the what we would call the presidential cycle, the four year presidential cycle, which speaks to a slow economy and slow asset prices in 26.

Now, do I have anything to hang my hat on that? Of course I don’t. Right. It’s conjecture.

It’s a narrative. But there’s got to be a reason why they’re acting so, shall I say, with a lack of foresight with what they’re doing with them with the tariffs right now, I’ll put it that way. I’m going to shift gears now and talk about monetary policy.

This came in just today on Monday from Trump, Donald Trump on Truth Social. Preemptive cuts in interest rates are being called for by many with energy costs way down. Food prices, including Biden’s egg disaster, substantially lower and most other things trending down.

There’s virtually no inflation. With these costs trending so nicely downward, just what I predicted they would do so there can be almost no inflation, but there can be slowing of the economy unless Mr. Too Late is talking about Powell. Mr. Too Late, a major loser, lowers interest rates now.

Europe has already lowered seven times. Powell has always been too late except when it comes to the election period when he lowered in order to help sleepy Joe. All right.

What’s your response to this? Luke, I’ll let you go first. I think the thing people aren’t looking at yet is arguing the counterfactual to that statement, which is the Europeans lowered seven times or whatever he said. I have not counted those up.

I’m assuming that’s correct, but let’s assume it’s right. The Europeans have lowered seven times and the dollar is falling like a stone against the Europe. What happens if Powell cuts five times from here or does an emergency cut? I mean, we’re going to have the dollar down in the low 90s before anyone can even… And so I think ultimately this is the goal.

I think ultimately what he wants… Some people have speculated that Bessent will create a run on the PBOC like he did on the Bank of England. I think he’s causing a run on the Fed. I think his force, Powell won’t play ball.

We will just tank things and we’ll do things. And then once the bond market breaks, which took a grand total of four and a half days after he announced the tariffs, then Powell will have to play ball. And we’ll just… Because at the end of the day, Powell can’t be the Fed chairman that lets a treasury auction fail.

And so I think they are involved in a very big game of chicken around who’s going to blink first. And I think Powell has his interests. I don’t think Trump is wrong that they lowered rates to try to help the election.

I think it was ultimately because the bond market was starting to have some problems in the fall. I think the timing looked terrible certainly as it related to the election. But I think ultimately, to Jim’s point, they want to front end load this thing.

And so I think they want to get the dollar down a lot. And so I think they’d like to see that. Because look, he can say all these about inflation.

Inflation is about to get a lot worse. Jim, is he… With this interruption, inflation is going way higher. Yeah.

Okay. So inflation… Wait, wait. Sorry.

Before we move on, Jim. Why… Okay. Inflation is going to move a lot higher.

Why is Trump, I guess, wrong in his assessment that inflation is going to stay low? Clearly, he doesn’t think the tariffs will cause inflation. I mean, are you looking at the tariffs as a cause for inflation? Are you looking at something else here? Absolutely. I’m looking at what they have done.

You know, we know if the United States government runs a $2 trillion-plus surplus, and they disrupt supply chains, and then you cut rates into it, and you suppress Treasury market volatility, that’s pretty much to a T what happened with COVID. That was COVID. And so fast forward to today, five years later, what do we have? We have the United States government running $2 trillion-plus deficits.

It’s probably going to be a $2.5 trillion deficit or more on an annualized run rate by the end of this year. You’re interrupting global supply chains very severely. You’re suppressing Treasury market volatility.

And you’ve possibly got the Fed cutting rates. Do I think Trump’s wrong? I think Trump’s looking at the rearview window because he has to. What’s the world going to say if he comes out and says, we got inflation down, and in the next two years, inflation’s going to 10% again? He can’t say that.

And half the country wouldn’t believe him if he did say it, and half the country would, which is part of the problem is the divisiveness of this country. That’s neither here nor there. I think inflation’s going significantly higher, but I think they’re just trying to front load, get the dollar down so that we can start reflating and we can start reshoring, I think is the plan.

Jim, here’s a CME FedWatch. It’s a similar question. So no change in the rates is expected by the CME FedWatch or the bond market in particular.

So I guess people either think that Powell is not a loser or that he’s not going to be Mr. Too Late. Anyway, what’s your interpretation? Is Powell going to cut rates come May? Maybe not May, but June. I think right now he should be at our star.

He should be at the neutral. And where I would add just to the conversation that Luke brought up is I would add, maybe it’s a good thing that we get inflation because the deflationary, there’s a lot of foundational deflationary pressures that are getting stronger. And excessive levels of debt are deflationary.

So the way I look at this, if you go back to pre-COVID, I mean, it was secular stagnation pushing on a string. We couldn’t get inflation higher. And my argument had always been, look, this is their chance to get inflation.

They couldn’t get it. We’ve finally broken the curse of Alvin Hansen’s secular stagnation. Don’t grasp defeat from the jaws of victory.

And so I would suggest, I hope we need inflation to grow our way out of this. Am I saying 10% inflation? No, but we need to have nominal GDP higher than inflation and higher than inflation is higher than interest rates. And so the way I look at it is we somehow have forgotten that there are existing deflationary pressures in this environment and the global economy does have excess capacity.

And, you know, what is secular stagnation? It’s really it’s a lack of demand, right? So the way I look at this is, look, I think interest rates, I look out five to six quarters. And so I think interest rates are going to go down into 27, rightly or wrongly. And then what we really have to do is you have to sit there and you have to ask yourself, OK, what does this look like into the end of the decade and into the new decade? And Luke might be absolutely right that we’re in this inflationary environment, right? I kind of position this as the echo of Covid and we’re going to go down lower than I think people expect.

And the other thing that was interesting, I’ll just talk about being up here to look at. So I’m a buy side guy. That’s why I don’t change my views very much.

You know, work in the States for 25 years. I’m up here in Canada. OK, I’m in Toronto.

But what I find interesting is, you know, the Fed Fund or the Bank of Canada rates basically at our star right now. Right. And we’re going through a balance sheet recession up here.

Right. There is no kickback. This is, you know, we’re going back.

We’re walking into pushing on a string, the flat LM curve. Right. Folks up here don’t understand that.

But here’s the difference, though. I think America isn’t in the same position because of the strength of the consumer. They’re not as levered up.

It’s going to be very interesting to see what happens when rates come down. So rates come down in Canada and Europe. I don’t see this grand, this fantastic reacceleration.

It’s going to be very interesting to see if rates go down to two and a half or 275. Let’s say our star. What is the kick? How does the private sector kick in? And Luke, maybe you might be right.

We may have inflation, but you know what? I think that’s more desirable than secular stagnation. And the thing that’s interesting, David, is if you go back to the 40, 45, coming out of World War II. And I got this from Bernie.

One of the things I hate about living up here, not living in D.C., is not being able to go to these presentations and hearing these guys talk after the PowerPoint presentation. It was Bernanke who was talking to a group bunch of guys and he said, look, this is like post-World War II. And what was the interesting thing about what he said is they contracted the balance sheet.

They thought they were going back. They thought that they were going back to the 30s. Right.

They thought that they were going back to secular stagnation and deflation in the 1930s. And that’s why they ramped back up the Fed’s balance sheet. They didn’t really touch it.

Now, I’m paraphrasing that. So I am looking at this as an intermediate phase. We’re going to go back down.

There is definitely inflationary pressures, but I think they would be desirable. I don’t know how we get out of this without inflation. Okay.

Let’s talk about some solutions to rising debts that I like to run by you. Here’s an interesting one. Bid bonds, a two trillion dollar idea that could slash the national debts.

This is reported on Forbes. How do they work? All right. Bid bonds are like regular bonds in the sense that the Treasury would allocate 90 percent of the bonds to fund the government, but it would then use the remaining 10 percent of the funds to purchase Bitcoin.

So let’s say you issue two trillion dollars of these Bitcoin bonds. Approximately 20 percent of the 2025 refinancing needs to be met through bid bonds. $100 issue, $10 buys Bitcoin.

Upon maturity, investors will receive 100 percent of the Bitcoin upside, up to four and a half percent of the total compounded return. After this benchmark is reached, investors would receive 50 percent of all remaining Bitcoin upside. Meanwhile, the government would keep the other 50 percent of remaining Bitcoin upside to supply strategic Bitcoin reserve.

I think it’s taking inspiration from Michael. Save this convertible bond. Anyway, do you have any views on this, Luke? I’ll let you go first.

I think in a vacuum it would work. The problem is I think it ignores the political economic reality, which is by them doing that, it would effectively make Bitcoin the new neutral reserve asset effectively, which I’m not saying is a bad thing. It might be a good thing.

Why would I own those bonds if I just go buy Bitcoin? I would rather have 100 percent of the upside and just own the Bitcoin and just cut the government right out. Why even bother with the middleman? I think the political economic side of it will be tricky to manage. I do think there’s a role for using Bitcoin, stable coins, financing.

At the end of the day, you need to find somebody who will buy U.S. government bonds at as negative a real rate as possible. So if you make Bitcoin big enough and then you mandate stable coin reserves of a certain level relative to the market cap of Bitcoin, and then you mandate that stable coins have a reserve base of a certain percentage of T-bills, now you’ve created for yourself a captive audience in stable coins where stable coins are paying zero percent. They’re getting five percent.

The government can compress that down. They don’t have to pay the stable coins very much if they want to cut rates down. That would work.

The concept works. It mirrors something Judy Shelton has talked about with gold, which is essentially you have a small part of the coupon in gold. I think that would be the better construction, which is, look, take five percent of the face value of the bond, straight Bitcoin.

And whatever you get, you get. Now, would I own a bond with a two and a half percent, a 10-year bond where five percent or 10 percent of the face was 100 percent Bitcoin with 100 percent of the upside? Yes, because now that takes away or compensates me for what we know mathematically must happen, which is U.S. governments have to inflate the debt away. They’re negative real rates for some period of time.

So you can do it with gold. You do it with Bitcoin. I think that’s unnecessarily complex about four and a half percent.

Put 10 percent of it in Bitcoin as a kicker, as a sweetener. And now you can lower the coupon down to two or one on a 30-year piece of paper. That would work.

That still gets into the political economy side of it. Until Bitcoin prices are high enough, Bitcoin is sort of the de facto reserve asset of the world if the U.S. government does that. So that’s the tricky side of it.

1. What do you think, Jim? Do you like this idea? Do you have a better idea? I think it’s very interesting. When Lou’s talking about it, I hearken back to 2008 with Freddie and Fannie blowing up and them being instructed to go out and buy all these mortgage-backed securities at par, not at 10 cents on the dollar, at par, and then write them off.

And you’re sitting there in D.C. and when this is happening, what’s going on? You’re saying, well, you’re taking care of your customer, aren’t you? You’re basically the customer, bought these subprime pieces of garbage. We’ve got to make it whole because they’ll never buy anything from us again. And so there’s my bias, David.

What are we going to do to save the franchise, which is U.S. Treasuries, as the gold standard, so to speak, of the store of value? And we could argue whether or not what President Biden and Secretary Yellen did in Ukraine during the war and all that. But what we need is something to anchor the U.S. dollar and the U.S. Treasury, and we need to create an environment that makes it attractive for folks to want to purchase all this debt that needs to be refinanced. Is it these bonds? I watched Luke talk about the fact that the stablecoin might initiate in a new era of the petrodollar, which is a brilliant, what we did back in the 70s to recycle.

That’s a brilliant idea. I think there’s going to be a multitude of ideas that are going to be put forward to ensure that the franchise, which is the U.S. Treasury as the number one position for store of value, holds because it needs to hold. Because if it doesn’t hold, what happens? We’ve got so much debt that we’ve got to refinance.

And so it could. I like Bitcoin. I like gold.

I think this is what we’re going to go through. But to me, I think it’s part and parcel of the type of environment we’re in where ideas are going to be floated. And I think the interesting thing is, as we talked about from the get-go, is we’re not going back to business as usual.

This is too big, what we’re going through. We’re going through a generational adjustment. Historians are going to write about this.

This is Brenton Woods, 45, or go back to the Greenback, Alexander Hamilton after the Revolutionary War. It’s that big. And so do I know exactly what it’s going to be? No.

But I would suggest to you that the U.S. dollar is still going to be the medium of exchange of the global economy. And the U.S. Treasury will still have the pole position. Now, I would expect negative rates to go back to Europe.

Look at the rates going in China, where debt deflation spiral. The rates are starting to come back down in China. All we really need to do is to basically maintain where we are right now, let the other interest rates go down, which is what’s happening.

And the U.S. Treasury start to become more attractive on that basis as well. So it’s going to be difficult. We’re in a sea of change.

But never say never. But I do think there is going to be a new global monetary system. It will be negotiated.

And I would not be surprised if gold and stable coins and Bitcoin have some part in it. Is it the IMF and special drawing rights? I have no clue. But we can’t go on the way we are right now, David.

Okay. I want to finish off with markets. So just today, the S&P is down about 3%.

The Dow dropped about 1000 points. Gold is up 3%. It’s now higher than $3,400.

Bitcoin is up about 3%. It’s interesting because Bitcoin and the stock markets have kind of been decoupling ever since the beginning of April or middle of April, rather, yeah, first, second week of April. So that’s interesting.

Given your analysis, I think you’re both on the same page on the macro front, higher inflation, perhaps higher yields and higher levels of debt being a problem. What should we do with our portfolios is my question. And I’ll leave this up on the screen just so you can take a look at it.

Luke, I’ll let you go first. I think until you get any clarity, what we’ve been saying is the only thing we have any conviction in is gold and T-bills in terms of marginal capital. Even at $3,400 an ounce? Oh, absolutely.

Absolutely. I don’t think people realize how bad this could get. And I would phrase that by saying, what asset do you own the day it is announced that a major U.S. defense manufacturer has to shut down production for lack of Chinese rare earths? Because that day is coming in the next three to six months.

And I don’t know what to own in that case other than gold and T-bills. And so that’s like that. These are the stakes we’re now playing at.

So, yeah, I think ultimately, you know, I put up a post earlier today. If you look at it, with gold having done what it’s done, the market value of U.S. official gold as a percent of foreign held treasuries is now 10 percent. In 1989, that number was 20 percent.

So gold would have to double from here just to get back to 1989 levels. The long term average is 40 percent. That’s how much foreign debt we now have.

Gold would have to quadruple just to get back to long term measure. If we have an honest to goodness dollar crisis, I don’t think we’re going to. We’re walking down that path.

We have a ways to go yet. But I don’t think if we actually have an honest to goodness dollar crisis, the market value of U.S. official gold collateralized the foreign held portion of our debt at one hundred thirty five percent in 1980. So I think that the goal I think is still going way higher.

And I think, you know, it kind of ties into Jim’s prior point of what do we need to do to reattract capital to the Treasury market, defend the franchise? And as a friend of mine likes to say, if you’re going to take Vienna, take Vienna. If you’re going to do something, do something, which is look, as I own gold, I would be happy to buy a lot of 10 year Treasury bonds, 30 year Treasury bonds at four percent if the value of the dollar in gold terms is appropriate. What’s appropriate? We can start to have a discussion about that at the 1989 valuation of U.S. official gold relative to our foreign held treasuries or seven thousand dollars.

I feel much better about the long term average unless things get worse, in which case I’m going to need more than the long term average. So at twelve thousand dollars plus, I will be a happy seller of gold and buyer of 10 or 30 year Treasury bonds at four percent. Short of that, I don’t see any you know, I don’t buy assets where the seller needs me to lose money on a real basis just for them to avoid defaulting, which is what we’re discussing here.

Just a quick follow up before we move to Jim. Luke, so what needs to happen for you as a gold investor to take some profits in the long term? So let’s suppose you’re right. Gold’s going much higher.

Do we take profits of seven thousand dollars or do we take profits before that? If something macro related changes, let’s say Trump reverses course completely, let’s say tariffs are off the table, let’s say uncertainty is off the table. You know what I’m saying? Sure, I think it depends how the uncertainty is resolved. I think if it’s resolved in extremists by, you know, Xi being overthrown, Putin being overthrown, you know, a version of Yeltsin being installed in both countries who proceed to sell their assets to the Americans on the cheap at, you know, only in dollars, then I’m a seller of gold all day long.

I don’t think either of those things are going to happen at one end. And so at the other end, I think it’s really around price of gold, implementation of policy, right? If the United States comes out and it turns out these UAP energy technology things or whatever we’re discussing, these UFOs are actually our stuff and we’re going to be able to roll out over the next six to 12 months, some sort of energy revolution. I take profits in gold there too.

And I would expect gold to be limit down to be honest in that case. But failing those two things, we’re increasingly looking like we’re cooked. Like the last thing I guess I would say is it would just be relative value, right? If gold stays here at 3500, the S&P goes back to 1000, I’d probably take some profits there, you know, relatively speaking, looking to buy some good American franchises on the cheap with gold that has held its value.

So it depends on how you get there, but I’m waiting for consensus to realize how cornered we are. And I don’t see it yet. And so at the end of the day, I’m waiting for that recognition.

Jim, are you aligned with that forecast for cooked? And if so, what do we do with our portfolios? So I, you know, David, are you in Vancouver? I am. Yeah. If Luke is right, boy oh boy is Vancouver, you know, that the home of junior mining gold stocks is going to fly.

You know, it’s going to absolutely fly. Look at I think gold by the end of 28 is going to be 5000, right? Easy, could go much higher. I think the plume is off the rose in terms of I think everybody knows that the jig is up with fiat money and the unsustainable debt.

I don’t. I look at this more of inputs and starts. And so I think, you know, with the with China, with basically a fixed exchange rate and a closed capital account, what I think I’m going to be wrong, but 50 percent of their debt, external debt denominated in the United States in debt deflation spiral.

I think a deal is going to be made. And that deal will provide a relief rally. You know, the other thing I would add to that is, is that, you know, the way I look at this is I try to overlay the 90s or Japan.

And the fact that, you know, we’ve heard this, or at least in my lifetime, I’ve heard this is a matter of national security with the Japanese in coming out of the out of the 1980s, they had all the technology, they had all the chips. You know, a lot of the policies that we’re seeing right now were implemented in the against the United against Japan. Yeah.

Yeah. Is it different? Yes. Japan is a is a is a is an ally militarily.

But I would still sit there and say to you that we are still way early in this phase about innovation in terms of AI and blockchain. And so I would suggest to you that a period of time where we’re going to go back and we’re going to go back to innovation. And what I would say is this, and I’m just going to steal, you know, the thunder of Drunken Miller, right? A couple, you know, I steal stuff from Luke, I steal stuff from everybody, right? Because I’m learning, still learning.

But, you know, Drunken Miller said a couple of things. One is don’t fight funding. You know, if the Fed starts cutting rates aggressively, we know we’ve got the dollar down, then we’re going to have a lot of liquidity.

If we have a global reflation cycle, then risk assets are going to go on. And we know that all you have to do is overlay, you know, you know, M2. And, you know, I think Ralph Hall does that, you know, with his, you know, with the overlay and you get, you know, what works in a period of time of reflation.

Well, first, what’s different this time is gold is finally working the way that we thought it would for decades. Right. So that’s great.

And then I would add Bitcoin in the Nasdaq 100. And I think we’re going to go and we’re going to have a relief rally. And I honestly really do think if this plays out the way that I’m thinking, I really wonder what the, you know, think about what would happen if there is a supermajority in the House and in the Senate for, you know, and their MAGA people.

Right. And, you know, Trump gets to start implementing a lot of these things in law. Right.

He can change the Constitution, folks. He could get it as, you know, Bannon’s talking about another term, like the world. We think it’s bad now when he’s doing EOs.

Imagine if he had control of the House and Senate with a supermajority. And I think he might be trying to do that. And if he does, I would be really concerned after that.

So, you know, the four year cycle seems to be, you know, on the 60 year cycle seems to be up for negotiation because I think he’s trying to really circumvent and short circuit the system and really start to put into place laws that aren’t going to be able to be short circuited by the new administration or the Supreme Court or some lower level judge in Washington, D.C. So that’s sort of, you know, what I’m asking if we were just sitting around the table having a cup of what are they doing? Like this is insane. They shouldn’t be doing like the stuff in the Rose Garden was just wrong. Right.

It’s bad economics. Why is he going after Powell? That’s not cause. Right.

It’s not. I mean, so is he stupid? Is he is the president in this team as dumb as a box of rocks? No. What’s the game? And so I think we’re going to have a relief rally here.

And if that’s the case, gold works. Bitcoin works. The Nasdaq 100 works.

Dollar goes down. And then I think as long as the U.S. interest rates are high relative to the rest of the world. Then we start to get ourselves a situation where we can start to make the sustainable.

And I think we got to hammer this home. Negative rates are needed. We need negative rates.

And so I think the question I would put is, what are we going to go back to a period of time that it looks like the 1950s? Right, because it’s that type of that’s what we’re talking about. This era of quantitative easing and the Fed being in control of everything is over as far as I’m concerned. We got to get through that.

So I am constructive on the markets because I think there’s going to be a short term deal. And that short term deal will be lip service. It’ll be putting lipstick on a pig.

It will not solve the big structural issues. And I think those are on the come line that are going to come later in the decade. So that’s what I’m looking at.

Final question to both of you, because we didn’t talk about this much. Your longer term outlook for the S&P. I’ll start with you, Jim.

I believe you were constructive on the S&P longer term, right? Post 2027. Yes, it’s basically, you know, I’m going to just use, you know, demographics are king. And typically when we have a massive cohort of brand new individuals coming in and saving for the retirement and family formation, you know, it’s nothing profound.

I think we’re in a secular bull market until the end of the decade. I think all I’m disagreeing with Luke is I think I want to push out the end of the world. I don’t use the end of the world, not in a disrespectful way, but that come to Jesus event, I think is early in the next decade.

It’s coming. I’m just arguing about time. So I think we’re going to rally here.

We’re going to have other hiccups like this. And I think we’re going to move higher into the end of the decade based on demographics. Luke, your longer term outlook for equities? Yeah, I’m ultimately bullish as well.

It’s for the reason I think Jim really highlighted, which is ultimately, you know, I in the short run, I’m very bearish, mainly because I think the only way we’re going to get a deal is if Trump backs down to China. And I think if he traps A, I don’t think that’s going to happen. And B, I think there’s a whole lot of people that will have to revisit long, very tightly held worldviews if Trump and the United States have to back down to China visibly.

So that’s why I’m so cautious near term to say the golden and T-bills and little else with marginal capital. Longer term, I think the way this movie ends is with the U.S. dollar, where are we at? Ninety-eight today. I think it ends with the dollar in the 70s or even lower on the DXY.

And to Jim’s point, that is a tidal wave of liquidity when you’ve got a world that has borrowed in dollars. That’s a world that’s great for E.M., that’s great for E.M. banks, it’s great for gold, it’s great for Bitcoin, it’s great for stocks. It’s great for the global economy.

And it helps you get that nominal growth above rates type of environment. So longer term, I’m bullish, but I think I’m in the near term, very cautious based on just some of the dynamics I’m seeing and some of the supply chain breakdown that I’m seeing. Okay, great.

I really appreciate both of your time. Thank you very much. Where can we learn more from you? Luke, let’s start with you.

Where can we find you? Absolutely. You can find website FFTT-LLC.com for more information about our mass market and institutional products. And of course, on X at Luke Grohmann, L-U-K-E-G-R-O-M-E-N.

All right. And Jim? I’m on X at Dr. Strategy. And come to our website, wellingtonaltas.ca. Okay.

Appreciate it, both of you. We’ll put the links down below, so make sure to follow Luke and Jim down there. Thank you very much.

We’ll speak again soon. Take care for now.