GuShiio.com A serious correction in U.S. stocks, driven by recession fears, is looming.
Author: Arthur Hayes
Compilation and organization: Compare BitpushNews
(The opinions expressed in this article are the author’s personal opinions and should not be used as the basis for investment decisions, nor should they be interpreted as suggestions or opinions for participating in investment transactions.)
Keep — It — Simple — Stupid = KISS
Many readers tend to forget the KISS principle when responding to the wave of policies of U.S. President Donald Trump’s administration.
Trump’s media strategy goal is for you to wake up every day and say to your friends, partner or inner monologue: My God, did you see what Trump/Musk/Kennedy Jr. did yesterday? I can’t believe they did that. rdquo; Whether you are in high spirits or depressed, this farce called the Emperor’s Day is quite entertaining.
For investors, this continued excitement is not conducive to accumulating bitcoin (sats). You might buy today and sell quickly tomorrow after digesting the next headline. The market continues to fluctuate in the process, and your Bitcoin reserves rapidly shrink.
Please remember the KISS principle.
Who is Trump? Trump is a real estate performer. To succeed in real estate, you must master the art of borrowing huge amounts of money at the lowest possible interest rate. Then, in order to sell units or rent space, you have to brag about how impressive the new building or development will be. I’m not interested in Trump’s ability to generate sympathy in the global community, but I’m interested in his ability to finance policy goals.
I am sure Trump wants debt financing to achieve his U.S. First policy.“” If not, he would have allowed markets to naturally purge the system of embedded credit and ushered in a Depression worse than the 1930s. Does Trump want to be called the Herbert Hoover of the 21st century or Franklin Delano Roosevelt (FDR)?··· American history disparaged Hoover because historians believed he was not printing money fast enough, and praised Roosevelt because his New Deal policies were paid for by printing money. I believe Trump wants to be considered the greatest president in history, and therefore he does not want to destroy the foundation of the empire through austerity policies.
To emphasize this point, remember that Hoover’s U.S. Treasury Secretary Andrew Mellon said the following when talking about how to deal with the over-leveraged U.S. and global economy after the stock market crash:
“Liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate. This will eliminate corruption from the system. High costs of living and luxurious lifestyles will decline. People will work harder and live more ethical lives. Values will be adjusted, and enterprising people will pick up debris from the less capable.& rdquo;
Scott Bessent, the current U.S. Treasury Secretary, wouldn’t say anything like that.
If I am correct that Trump will achieve U.S. first through debt financing, what impact does this have on my future views on global risky asset markets, especially cryptocurrencies?
To answer this question, I must form an opinion on the possible ways in which Trump might increase the amount of money/credit (i.e. printing money) and lower its price (i.e. interest rates). So I have to have an idea of how the relationship between the U.S. Treasury led by Scott Besant and the Federal Reserve led by Jerome Powell will evolve.
KISS principle
Who do Besant and Powell serve? Is it the same person?
Besent was appointed by Trump 2.0, and judging from his past and present interviews, he strongly agrees with the emperor ‘s worldview.
Powell was appointed by Trump 1.0, but he was a capricious traitor who defected to the Obama and Clinton camps. Powell destroyed what little credibility he had left when he cut interest rates sharply by 0.5% in September 2024. At that time, the U.S. economy was growing above trend and there were still signs of inflation, so there was no need to cut interest rates. But Obama-Clinton puppet Kamala Harris needed a boost, and Powell dutifully cut interest rates. The results did not work as expected, but after Trump’s victory, Powell announced that he would complete his term and once again fight inflation firmly.
When you have huge debts, several things happen.
First, interest payments consume most of your free cash flow. Secondly, you can’t finance additional asset purchases because given the high debt level, no one will lend you money. As a result, you have to restructure your debt, which requires extending the maturity date and lowering the coupon rate. This is a form of soft default because doing so mathematically reduces the present value of the debt burden. Once your effective debt burden is reduced, you can borrow again at an affordable price. Looking at the issue from these perspectives, both the Treasury and the Federal Reserve have a role to play in restoring U.S. financial health. But the success of the effort was hampered by the fact that Besant and Powell served different masters.
debt restructuring
Besent publicly stated that the current debt structure of the United States must change. He hopes to eventually extend the average maturity of the debt burden, known on Wall Street as debt maturity extension. Various macroeconomic experts have provided suggestions on how to achieve this goal; I discussed such solutions in detail in The Genie. However, the most important thing for investors is that the United States will soft default on its debt burden by reducing the net present value.
Given the global distribution of U.S. debt holders, such restructuring will take time to achieve. This is a geopolitical Goldie knot. So in the short term, that is, in the next three to six months, this has nothing to do with us as the inventor of cryptocurrency.
new loans
Powell and the Federal Reserve have broad control over the amount of credit and its price. The law allows the Federal Reserve to print money to buy debt securities, thereby increasing the amount of money/credit, i.e. printing money. The Fed also sets short-term interest rates. Given that the United States cannot default in nominal U.S. dollars, the Federal Reserve decided on the risk-free interest rate for the U.S. dollar, the effective federal funds rate (EFFR).
The Fed has four main levers to manipulate short-term interest rates: the Reverse Repo Program (RRP), the Reserve Balance Rate (IORB), the federal funds rate floor, and the federal funds rate cap. Without delving into the complex details of the money market, we just need to understand that the Federal Reserve can unilaterally increase the amount of dollars and lower its price.
If Besant and Powell serve the same Leader, it will be easy to analyze the future path of dollar liquidity and the reactions of China, Japan, and the European Union to U.S. monetary policy. Given that they clearly don’t serve the same person, I wonder how Trump could manipulate Powell to print money and lower interest rates while allowing Powell to stick to the Fed’s mandate to fight inflation.
Destroy the economy
Federal Reserve-Law of Recession: If the U.S. economy falls into recession, or the Fed fears that the U.S. economy will fall into recession, it will cut interest rates and/or print money.
Let’s test this law against recent economic history (thanks to Bianco Research for this excellent table).
This is a list of the direct causes of the modern U.S. economic recession after World War II. A recession is defined as negative quarter-on-quarter GDP growth. I will focus on the 1980s to the present.
This is a chart of the federal funds rate floor. Each red arrow represents the beginning of an easing cycle that coincides with a recession. As you can see, it is abundantly clear that the Fed will cut interest rates at least during recessions.
Fundamentally, Pax Americana and the global economy it rules are debt-funded. Large companies issue bonds to fund future expansion of production and current operations. If cash flow growth slows significantly or declines completely, the ultimate repayment of debt will be called into question. This is problematic because the company’s liabilities are largely assets of the bank. Banks hold corporate debt assets that support their customers ‘deposit liabilities. In short, if the debt cannot be repaid, the value of all existing statutory credit bank notes will be questioned.
In addition, in the United States, most households are leveraged. Their consumption patterns are marginally paid for with mortgages, car loans and personal loans. If their cash flow generation capabilities slow or decline, they will be unable to meet their debt obligations. Likewise, the banking system holds these debts and supports its deposit liabilities.
It is crucial that the Fed not allow large-scale defaults or an increase in the probability of corporate and/or household debt defaults during recessions or before cash flows are generated to slow or contract. This can lead to corporate and consumer debt defaults, leading to systemic financial distress. In order to protect the solvency of the debt-financed economic system, the Federal Reserve will actively or passively cut interest rates and print money whenever a recession occurs or people’s perception of recession risks increases.
KISS principle
Trump manipulated Powell to relax the financial environment by triggering a recession or convincing markets that a recession was coming.
In order to avoid a financial crisis, Powell will then take some or all of the following measures: interest rate cuts, end quantitative tightening (QT), restart quantitative easing (QE) and/or suspend the supplementary leverage ratio (SLR) for banks to purchase U.S. Treasury bonds.
Here is a picture from DOGE:
How did Trump unilaterally trigger a recession?
The marginal driver of U.S. economic growth has always been the government itself. Whether spending is fraudulent or necessary, government spending creates economic activity. In addition, government spending also has a monetary multiplier effect. That’s why the Washington, D.C. metropolitan area is one of the wealthiest areas in the United States because of the large number of professional parasites there that suck blood from the government. It is difficult to directly estimate the exact monetary multiplier, but conceptually it is easy to understand that government spending has a subsequent effect.
According to Perplexity data:
● The median household income in Washington, D.C. is $122,246, much higher than the national median household income.
● This puts Washington, D.C. in the 96th percentile of cities with household income in the United States.
As a former president, Trump is well aware of the extent of fraud, fraud and waste within the government. Neither party establishment wants to curb this because everyone benefits from it. Given that Trumpists are outside the Democratic and Republican Party, they do not hesitate to expose shortcomings in government spending plans. The establishment of an advisory committee led by Elon Musk and backed by Trump, called the Department for Government Efficiency (DOGE), is a central driving force for rapid and deep cuts in government spending.·“”
How does DOGE do this when many of the largest spending items are non-discretionary? If the payment is fraudulent, the payment can be stopped. If computers could replace government employees managing these projects, human resource costs would drop sharply. The question becomes, how much fraud and inefficiencies are there in government spending each year? If what DOGE and Trump say is true, the annual amount will reach trillions of dollars.
A potentially obvious example is who the social protection Administration (SSA) sends checks to. If we believe DOGE, the department is releasing nearly a trillion dollars to deceased people and people whose identities have not yet been properly verified. I don’t know the truth of this statement. But imagine you are an SSA benefit fraudster and know that Elon and Big are delving into the data and may discover fraudulent payments you have received over the years and submitted to the Justice Department. Are you continuing your scam or running away? The key is that just detected threats can lead to a reduction in fraudulent activity. As an old saying in China, kill the chicken as an example. So, although the establishment media is fooling Elon and DOGE, I believe there are hundreds of billions, if not a trillion dollars.
Let’s talk about the human resources aspects of the government spending equation. Trump and DOGE are laying off hundreds of thousands of government employees. Whether unions have enough power to challenge the mass cleanup of useless government workers remains to be determined. But the consequences are already evident.
DeAntonio explained: The layoffs we have seen so far may be just the tip of the iceberg. The scale and timing of future layoffs will determine whether the labor market remains stable. We currently expect that the number of federal government workers will be reduced by approximately 400,000 by 2025 due to a continued hiring freeze, delayed resignations and DOGE-initiated layoffs. rdquo;
– Fox Business
Even though Trump’s 2.0 presidency has only begun a little more than a month, the impact of DOGE is obvious. Applications for unemployment benefits surged in the Washington, D.C. area. House prices plummeted. Consumer discretionary spending, which can be said to be driven by large-scale fraud and fraud by the U.S. government, also disappointed financial analysts ‘forecasts. Markets are starting to talk about the word recession.
Home prices in Washington, D.C., have fallen 11% since the beginning of the year, according to a new analysis from real estate exchange platform Parcl Labs, which tracks the impact of the Department of Government Efficiency (DOGE) actions on the city’s real estate market.
– Newsweek
Rothstein posted on Bluesky that the United States is almost certain to head for a severe economic contraction due to massive government layoffs and sudden cancellations of federal contracts.
– The Economic www.gushiio.coms
“The word recession is an economic disgrace. Powell does not want to become the modern Hester Prinn (and be humiliated and condemned by the public), so he must respond.
Powell turned again
Powell has turned so many times since 2018 that he must be feeling dizzy. The question for investors is whether Powell will pre-emptively save the financial system from collapse, or will respond only after a large financial institution fails. The path Powell chose was purely political. Therefore, I cannot predict.
But what I do know is that $2.08 trillion in U.S. corporate debt and $10 trillion in U.S. Treasuries must be rolled over this year. If the United States is on the verge of or in the middle of a recession, the impact of cash flow will make rolling over these huge bonds at current interest rates almost impossible. Therefore, in order to maintain the sanctity of the American peaceful financial system, the Federal Reserve must and will take action.
The question for us cryptocurrency investors is how quickly and on what scale will the United States release credit? Let’s break down the four main measures the Fed will take to turn things around.
interest rate cuts
It is estimated that every 0.25% reduction in the federal funds rate is equivalent to $100 billion in quantitative easing or money printing. Suppose the Federal Reserve reduces interest rates from 4.25% to 0%.
This is equivalent to $1.7 trillion in quantitative easing. Powell may not reduce interest rates to 0%, but you can be sure Trump will allow Elon to continue cutting spending until Powell reduces interest rates to the desired level. When acceptable interest rates are reached, Trump will control his mad dog.
Stop quantitative tightening (QT)
The recently released minutes of the Federal Reserve’s January 2025 meeting detailed that some committee members believe that quantitative tightening must end sometime in 2025. Quantitative tightening is the process by which the Federal Reserve reduces the size of its balance sheet, thereby reducing the amount of U.S. dollar credit. The Federal Reserve conducts a monthly quantitative tightening of $60 billion. Assuming the Fed starts acting in April, this means that stopping quantitative tightening will inject $540 billion in liquidity in 2025 relative to previous expectations.
Restart quantitative easing (QE) /supplementary leverage ratio (SLR) exemptions
In order to absorb the supply of U.S. Treasury bonds, the Federal Reserve could restart quantitative easing and grant banks additional leverage exemptions. Through quantitative easing, the Fed can print money and buy Treasury bonds, thereby increasing the amount of credit. The Supplementary Leverage Waiver allows U.S. commercial banks to use unlimited leverage to purchase Treasury bonds, thereby increasing the amount of credit. The point is that both the Federal Reserve and the commercial banking system are allowed to create money out of thin air. Restart quantitative easing and grant exemptions to supplementary leverage ratios are decisions that only the Federal Reserve can make.
If the federal deficit remains in the range of $1 trillion to $2 trillion per year, and the Federal Reserve or banks absorb half of new issuance, that means an increase in the money supply by $500 billion to $1 trillion per year. A 50% participation rate is conservative because during the COVID-19 period, the Federal Reserve purchased 40% of new issuance. Still, in 2025, large exporting countries (China) or oil producing countries (Saudi Arabia) have stopped or significantly slowed down the use of dollar surpluses to buy Treasuries; therefore, the Federal Reserve and banks have more room for manipulation.
Make a calculation:
Interest rate cut: US$1.7 trillion
+
Stop quantitative tightening: $0.54 trillion
+
Restart quantitative easing/supplementary leverage exemption: US$500 billion to US$1 trillion
Total = US$2.74 trillion to US$3.24 trillion
COVID-19 vs. DOGE banknote printing
In the United States alone, the Federal Reserve and the Treasury created approximately $4 trillion in credit between 2020 and 2022 in response to the Covid-19 epidemic.
The scale of money printing inspired by DOGE-inspired may reach 70% to 80% of the COVID-19 level.
With $4 trillion printed in the United States alone, Bitcoin has risen about 24 times from its 2020 low to its 2021 high. Given that Bitcoin’s market value is much larger now than then, let’s be conservative and call the $3.24 trillion increase in U.S. money alone printed alone a tenfold. For those who ask how Bitcoin reached $1 million during the Trump presidency, this is the answer.
Several key assumptions
Even though the market is in ruins right now, I still paint a very bright future for Bitcoin. Let’s take a look at my assumptions so that readers can judge for themselves whether they are reasonable.
-
Trump will achieve America first through debt financing.
-
Trump is using DOGE as a means to weed out political opponents addicted to fraudulent sources of revenue, cut government spending, and increase the likelihood of a slowdown in U.S. government spending triggering a recession.
-
The Fed will adopt a series of policies before or after a recession to increase the amount of money and lower the price of money.
Depending on your worldview, it’s up to you to decide whether this makes sense.
U.S. strategic reserves
I woke up on Monday morning and saw the Trump campaign launch. On Truth Social, Trump reiterated that the United States will build a strategic reserve filled with bitcoins and a pile of junk coins. The market rose sharply on the news. This is nothing new, but markets see Trump’s reaffirmation of his cryptocurrency policy intentions as an excuse for a violent dead-cat backlash.
If this reserve is to have a positive impact on prices, it requires the U.S. government to have the ability to actually purchase these cryptocurrencies. There are no secret dollars piled up like mountains, waiting to be deployed. Trump needs help from Republican lawmakers to raise the debt ceiling and/or revalue gold to match current market prices. This is the only way to fund cryptocurrency strategic reserves. I’m not saying that Trump won’t keep his word, but the time frame within which purchases may begin may be longer than the time a leveraged trader can hold on before selling.Therefore, reduce your position on every high.
trading strategy
Bitcoin and the broader cryptocurrency market are the only truly global free markets that exist. The price of Bitcoin tells the world in real time how the global community views the current liquidity situation of fiat currencies. Bitcoin reached a high of $110,000 in mid-January on the eve of Trump’s coronation and hit a local low of $78,000, a drop of about 30%. Bitcoin is screaming and a liquidity crisis is looming, even as the U.S. stock market index is still near all-time highs. I believe in Bitcoin’s signal, soA severe correction in the U.S. stock market driven by recession fears is imminent。
If Bitcoin leads the market when it goes down, it will do the same when it goes up. Given that minor financial turmoil quickly spreads into out panic due to the huge amount of leverage embedded in the system, if my predictions are generally correct,We don’t have to wait long for the Fed to take action.Bitcoin will fall to the bottom first and then rebound first. As for those rotten traditional financial systems, led by U.S. stocks, they will slow down a beat before starting to rise, but they will have to experience a round of plunging before chasing gains.
I firmly believe that we are still in a bull cycle, so the worst-case bottom will be the all-time high of $70,000 in the previous cycle。I’m not sure we’ll fall that low. A positive sign of dollar liquidity is that the U.S. Treasury’s general account is declining, which serves as an injection of liquidity.
Based on my confidence in Trump as the type of financier and his ultimate goal, Maelstrom increased its exposure when Bitcoin was traded in the $80,000 to $90,000 range. If the current situation is just a dead cat rebound (a brief rebound and then continues to fall), I expect Bitcoin may once again drop to a low of around $80,000.
If the S & P 500 or Nasdaq 100 fell 20% to 30% from historical highs, and if a large financial institution was on the verge of collapse, we could see a full convergence of global markets. This means that all risky assets will be hit hard at the same time, and Bitcoin may fall below $80,000 again, or even $70,000. No matter what happens, we will be cautious to gradually build positions during declines and not use leverage in the hope that the global (especially U.S. -led) fiat financial markets will re-expand after the final collapse and push Bitcoin to US$1 million or even higher!
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