(continued, because of SaidIt's stupid character limits)

The 30-year (Treasury) bond auction we had a few weeks ago was absolutely abysmal and it was a preview of what the Treasury is facing. We're borrowing so much that the likelihood we're going to have a tsunami of debt in the near future is rising every day we run the kind of deficits we have.

The US Treasury and US dollar are the global reserve asset and the global reserve currency, which gives us a very long runway on this debt issue. It doesn't mean it solves it, but it does give the Fed and the Treasury a whole lot of rope to keep playing this game.

The Treasury isn't deciding the spending, they just have to figure out a way to facilitate all this government spending and operate in that budget. The way they've been doing it is issuing debt. So they put out a report in February of this year, it's basically "the state of the Treasury, how we're doing" and the subtitle was "an unsustainable fiscal path." I believe they took it down recently. They showed a chart that showed how quickly debt to GDP was rising. It was a red flag for the government to say, "we can't keep doing this, at some point this breaks and we enter some kind of hyperinflation because of a loss of confidence in our currency."

You look back and when did this start? In 1971, when Nixon officially took us off the gold standard and we got Saudi Arabia to agree to transact the sale of its oil in US dollars. That makes other countries that are energy-dependent have to hold US Treasuries in order to have access to dollars at all times so they can buy that oil. So they sell their Treasuries, get the dollars and buy the oil.

But the world is waking up and you're hearing frustration from countries like Brazil and Saudi Arabia and India and Russia, the BRICS. They don't want to be beholden to the US dollar anymore because they know we're running these huge deficits and have no choice but to have long-term, perpetual, structural inflation. Inflation that we don't admit to, and that's the biggest problem.

We're starting to feel it across the economy, individuals are starting to feel it. Every day there's thousands of videos of people on social media saying "I don't know how people are making it, everything is costing so much. Who has a job that pays them enough to buy food that costs this much, or houses or cars that cost this much?" So it's becoming a problem internally and that's a big red flag for us.

Back in the 80s we had a similar inflation problem but because we were running 30% debt to GDP, Volcker was able to raise interest rates up to 20%. That's not an option now, now we're running debt to GDP of 130%, deficits of about $2 trillion, interest payments of $1 trillion.

The way I look at it is that we're in a debt spiral and we can't get out of it. When you're running such large deficits, what are your choices as a government? Either austerity, which is cutting expenses, but that's political suicide; each party is trying to trick the other into doing something like that because it loses the confidence of their constituents and they lose votes, so neither party is going to do it.

Second, you could raise taxes. But the reality is when you do that you disincentivize investment in those companies; you disincentivize research and development; you disable the ability of companies to expand on their product line, to expand into new products, to hire more people, to pay people more. So even when you raise taxes and get more money in, the revenue is smaller so you end up getting to the same place.

Third, you can issue more debt. When debt matures in this country, we don't have the money to pay back what we borrowed. So we have to issue more debt to have the money to pay the principal back on the earlier debt, and we hope that investor we pay back turns around and invests in the new debt. That's why you're seeing the debt grow and grow. $2.4 trillion in debt we've issued in 5 months.

The other option: you can default on your debt; you can declare you're only going to pay 50% of what you owe - we've seen this happen in countries that have gotten into this debt spiral problem. But why would a country that issues debt in the same currency it can print? You wouldn't. You'd just print more money and monetize your debt.

The last option and the one we're obviously going to implement is a soft default. That's having high perpetual, structural inflation forever. That enables you to grow your GDP nomimally - those are on your fake dollars because now you have more dollars in the system. You've got inflation of prices but there's more money in the system. So those dollars you borrowed 10 years ago on that debt, now you're going to pay that back but you're using dollars that are cheaper, they're worth less because there's more of them out there.

The people who lose are the ones whose real wages aren't really keeping up. So, who is that? It's the ones who don't have any assets; they don't have any debt so they're not benefiting from paying back cheaper dollars; but also they're being hurt by this hidden inflation. You can't tell me that the price of goods and services over the last couple of years are only up 12% or something. The CPI numbers are absolutely being manipulated.

So the issue is, are those metrics true? Are the low-wage earners, the real wages, really keeping up with inflation? Because if you ask anyone at the lower end of that eschelon, you'll likely be told "no." The other thing is, how many jobs do they have to work in order to keep up with that inflation?

The Fed oversees stable pricing in the system, i.e., that we don't have inflation or deflation that runs out of control. And they want full employment. That supposedly is their two mandates. In reality - go to first principles - why do we need stable pricing? Because we need confidence in the dollar. Okay, who are they answering to? They're answering to the Treasury. The Treasury needs a stable dollar because they need to keep borrowing, to keep issuing debt; they need to be sure they have that avenue to facilitate all the spending that's going on in Washington. When real inflation, true inflation, is so high that people don't want to hold dollars anymore, that's when lack of confidence in the dollar happens.

This is the problem and what maddens me: when you have the manipulation of money and you continually go in these ebbs and flows of the economy and then you get into one of these downturns, who gets hurt the most? Who loses their job? Typically you have a swathe of wage earners that aren't critical to a company that get laid off, so all those layoffs in a recession winds up just doling out economic pain across the board.

So we've been conditioned that the Fed and Treasury are going to make sure large companies don't fail; that large banks don't fail; that the market doesn't melt down; that the Treasury market stays liquid, even if it means they have to dump liquidity in to make sure of it. And who makes out from that? The ones closest to the liquidity spigot are the ones who benefit the most. So, asset owners. People who own large houses, gold, bitcoin - they're going to benefit in this cycle IMO.

(they discuss bitcoin a good bit at the end of the video for those who are interested)