10 min read

The economy's bruises are showing.

They'll keep pretending everything is OK and patch anything that threatens to blow up before the election. But they'll have to print and it shows.
The economy's bruises are showing.


We've long held one of the forces that will drive Bitcoin upward will be the US government being forced to print massive amounts of money to keep itself from defaulting under untenable levels of debt.

In a nutshell, this means that instead government taking the hard medicine which could eventually —through a painful road— lead to a healthy economy, they'll pump the system full of morphine to treat the pain instead of the illness.

The reason they'll continue to choose this road is not complicated. The "hard medicine" would drive popular sentiment too close to the point where guillotines seem sensible, austerity will never win a popularity contest.

So they lie and to convince you everything is OK (in fact it's better this way) as they try to kick the can even further down the road. But with every kick the can gets heavier.

Because some of the voters can still read and do basic math they need to manipulate the numbers to support their narrative.

For example, they clap themselves in the back for GDP growth and fail to mention it's largely driven by massive government spending, fueled by fresh debt.

For more than 20 years the government has been spending far more than it makes. Their official projections already look scary before you learn the plan is to let the federal deficit go wild for the next 30 years and pray nothing goes tits-up.

What are the odds of that?

Over 80% of government expenses are on auto-pilot— driven by categories that wold be almost impossible (at least politically) to reduce.

The fact one of the biggest expenses is the cost of servicing debt is ominous.

Their pans are so optimistic, they couldn't last 6 months without requiring a 26% upward revision for the second semester of this year.

Could this increase be related to the government's loan forgiveness program? It never ceases to amaze how generous they can be with your money.

If you want a deeper dive into all this, the (long) tweet below does a good job breaking down some of the moving parts.

Not included in the analysis above though, is the fact foreign appetite for US debt is not keeping pace with debt growth.

What are they buying instead?

It seems a fairly obvious move to us to choose hard assets over negative yielding debt, it's amazing to see the broader market ignore this trend despite the fact Central Banks are visibly and actively engaged in this trade.

Don't get me wrong, the USD is still the best house in a bad neighborhood, and will probably remain so for a good while, but the fact some countries are looking for alternative, non US-dominated rails should not surprise anyone whose being paying attention after the sanctions to Russia's Central Bank.

Wall Street

Most of the above was at a government / nation-state level, but how is all of this reflected in the market, outside government?

Affluent asset holders are dong great, thank you very much. But are they well positioned for a turn of the tides?

I'm not one to fade AI, with all of its plentiful warts, the speed at which its improving is nothing short of breath-taking.

While I don't necessarily agree with the timeline suggested by the recent "Situational Awareness" paper that dropped like a bomb a couple of weeks ago, I do think AI will get much better, much faster than most people can imagine.

Will it become smarter than us? I'd bet yes. Self-aware, not so sure.

In any case, Nvidia is certainly been the most successful rider of both the hype and reality of this massive wave but does that mean they get infinite valuation?

As someone who invested through the dot.com bubble I wouldn't short Nvidia, but they're current valuation simply seems well, disproportionate.

Having said this —unless something bad happens first— the stock market will probably melt-up if the government turns on the money printer.

How about banks, how are they doing?

The corporation that insures your deposits (FDIC) forces banks to have "living wills" pre-made plans in place in case they find themselves under financial distress.

After a recent review, the FDIC determined the plans for Bank of America, Citigroup, Goldman Sachs, and JPMorgan Chase, were lacking.

I have to agree with Ben, banks feel to me like they're on pins and needles.

The government will do everything they can to contain a domestic banking crisis (at least untill after elections), but will they also be able to contain bank failures outside the US?

The problem with Norinchukin selling tons of USTs is it'd make it harder for new debt to find a market without raising rates (which would make the servicing of already existing debt even moar expensive).

In the (long) article below Arthur Hayes goes in depth explaining how the most likely outcome of the Norinchukin situation is them offloading their USTs to Bank of Japan and BOJ tapping the Fed for liquidity —all of this in order to not blow out interest rates.

Long story short, the US will have to print astronomically. It's a matter of when.

The current lack of appetite for gold by corporations and retail suggests most remain unaware of the current risks of debasement or default. The chart below is from last year but I'll bet it remains similar.

Main Street

As all the above unfolds, how's the US citizen doing?

In previous issues we've shown plenty of examples suggesting Commercial Real Estate is doing horribly. Seems housing is going through a rough patch as well

This is not that hard to understand when you consider the cost of food has been rising considerably.

The majority of americans are feeling the pain.

The War Continues

Despite hopeful signs of the US "war on crypto" coming to an end, it seems not everyone has gotten the memo yet.

Stripe seems to be hostile towards crypto-adjacent companies

And the Biden administration keeps wanting to exert control over the industry.

Fortunately some bright spots keep appearing, not all states kowtow to the Federal Government.

And more politicians around the world are recognizing Bitcoin as a positive component in their platform.

The vast majority of people and corporations have still not woken up to Bitcoin as a lifeboat. I don't think they will before $150k, but a few billionaires might…

Nobody can say when price will take off again, but take off epically it will.

PS. This week's Mt. Gox FUD (see below) tanked price to the $60k levels. I'd suggest you stack hard here.

Price News

Mt Gox

Apparently, the long awaited distribution from Mt. Gox creditors is finally coming next month.

This will be more than enough reason to fearmonger price as low as they can before the actual event takes place, but I don't think the reality of the distribution will be all that apocalyptic.

Bitcoin Surfing

The Mt. Gox news almost drove BTC to the Water line ($58.5k) where it would probably find strong support.

Dip Fishing

Last week I said "We may dip all the way to $60k if something nasty happens, but I'd be surprised if we went lower." Here we are.

I'm not saying we couldn't go to $56k on further bad news, but I am saying: This is the dip. If you've been waiting to buy, do it now. Yes, you may miss an even lower bottom, but honestly I wouldn't bet on it.

Calm Chart

June now seems almost certain to close in Red. I take it as a good sign, coils the spring tighter for the bounce up.