Yo, welcome back to another episode of the Jack Mallers Show. I am your host, Jack, and you are listening to yet another edition of Mailbag Monday. Guys and girls, today we've got the $40 trillion trap, higher yields, and sovereign debt. Here's my vision for today's episode. We wake up today, markets open this Monday morning and yields across the curve are just going higher, higher, higher, and exponentially higher. I mean, they're spiking. They're looking like a Bitcoin bull run, except these are yields on top of government debt. Now, I'm on the record telling you guys and pretty much everyone that's willing to listen to me, it doesn't matter if they hike rates, it doesn't matter if they cut rates, it doesn't matter what they do. This all mathematically has to result in a weaker dollar, debased currency. They got a debased debt to GDP. You're going to get inflation. You're going to get inflation in things like food, housing, energy, oil, Bitcoin. And there's nothing they can do about it. It's just math. And it's a very complicated topic. And embedded in that math is things that people don't necessarily know or that isn't main street knowledge. So obviously I could have flashed you guys, oh this is what Trump said this morning or this is what Scott Bessent is tweeting about. I figured for today we'll review where the yields are, how they opened and performed this morning, and then dig through the math in plain English, exactly what I mean by the fact that they're trapped. And we're living through a sovereign debt crisis, and it is baked in the cake that hard assets will inflate against fiat currencies that mathematically must be debased. So, I hope that this episode actually has a longer lifespan than just a Monday weekly live stream and people can go back and reference it because it breaks down a lot of very basic macroeconomic math. All right, before we get into it, let's time stamp this bad boy. Ladies and gentlemen, I'm talking to you all at a Bitcoin price of 83,175. That puts Bitcoin's market cap at 1.67 trillion. Our all-time high remains at 126,080 bucks. We are 34% off that all-time high we set on October 6th, 2025. It's been 357 days since we made that all-time high. And the last Bitcoin block height mined since I hit stream is Bitcoin block height 969,52.
All right, let's get into the good stuff. So, as I mentioned, yields won't stop going up. And I hate to be a broken record, but you guys know this is a show by the common man for the common man. What does that mean? Well, yield is in reference to this is all about lending the government money. Let's we're on this episode we're going to be talking strictly about the US government more or less. The US government runs a massive deficit, which we'll get into in a second. What that means is they spend more money than they make. So they operate every single year at a loss. In order to do that, how do you pay the bills? How do you spend money you don't have? Well, you borrow money. Who do you borrow it from? Anybody. How much does it cost to borrow? That's what we're talking about. And so the yield on the debt across the board is going up. So what I have on the screen is the 5-year, the 7-year, the 10-year, the 20-year, the 30-year. And what is often referred to as bond math is when demand for bonds goes down, yields go up. There's an inverse correlation there because if you think about it logically, well, if the US government tries to sell debt and pay a 1% yield and there's no demand for that, then the market will start to clear at maybe well what about 1.5%. Okay, not there. What about 2% 3% 4%. How much do you need to be paid to lend money to the US government? And so when yields are going up, that's a terrifying thing for the United States and for governments and for traditional finance people because it implies that there is not enough demand for bonds for treasuries for lending to the US government. People do not want to lend to the US government. So on the screen today, yields have been shrieking higher. And then I wanted to include this tweet as well. This tweet reads, 'The US 30-year yields casually breaking 24-year highs. They are now above 5.56%. And while the level itself is worrying, it's the speed that is the real danger. Since the war begun, they're up almost 100 basis points. Moves this quick start breaking things.' And it's another really, really important point. We've talked about it before is that not only are the yields going up, not good, but it's the volatility, it's the spike, it's just how quick these moves are happening. And inevitably, you're going to get some form of a crisis. And it's a good point that the 30-year Treasury yield is up about 1% since the war in Iran that was famously supposed to only last a few weeks has started.
Okay. So my point here and the math I'd like to prove to you guys is that they're trapped. And when I say they, I'm talking about, you know, PAX Americana, the US government, the US Treasury, the Federal Reserve, all of the above. This whole concept of post 1971 fiat currency that we can just print out of thin air. This whole idea of Keynesian economics, it's all one giant trap. Okay. So let me explain. First of all, we start at this number of 40 trillion. Massive number, right? And I'm trying to give context to this number here. One, this number is higher than what the economy produces in a year. So, we're already operating at over 100%. The economy is about 31 to 32 trillion and our debt load is 40 trillion. Now, how much is that in years of revenue? So, like tax dollars that the US government brings in, that's their primary source of revenue is the receipts. And it's about seven years. So this is a massive, massive pile of debt. To give you guys a sense relative to other countries how massive this is, the United States is the biggest, has the biggest interest bill in the world. And here's the other point that I think I need to make because what you guys will see online is, oh well, you know what we need to do is look back when we were in a similar position in the 1970s or 1980s or 1990s. Well, I'm going to predict what the Federal Reserve is going to do in 2026 and 2027 based on this chart in 1980 or 1970. It's guys, what's very unique here is that the US government was never $40 trillion in debt. Debt to GDP was never over 120%. That makes this situation unique. That's the most important variable of the whole thing. And so I also just need to call out and make it clear that sure we can look at history to inform ourselves about today. I'm not saying that that is ill-advised or a bad idea. But what I am saying is that it's not apples to apples. It's not a perfect comparison. So the United States is the biggest interest bill in the world in the developed world. That is what we should count. This was published in its relative comparison to Japan. So Japan yields are going higher. Japan has its own inflation problem that it's trying to fight. But the Japanese as a percentage of the Japanese GDP on interest, it's still less than 1%. Okay? So, it's actually reasonable. It's, you know, I'm not going to defend Keynesian economic fiat nonsense. But, you know, it's relatively affordable compared to the United States as a percentage of GDP on interest alone is projected to be 4.25% in 2027. That is an astronomically high number and it is in fact by far the biggest number in all of the developed world.
More context on the United States debt situation. Just more numbers to contextualize this stuff for you guys. Before the interest, I just want to give context on two things. One, the United States is already spending more than it collects on taxes. So before a single dollar of interest expense because sometimes people say well what if we remove the interest expense. If we remove the interest expense we're still spending about 2.6% of GDP. So we are spending more than we're collecting in taxes which is kind of this whole concept of this deficit. Congress, US government just keeps spending, spending, spending, spending, printing, printing, printing, printing. Now if you add our interest expense that's another trillion. That's how you get to this about $2 trillion number. This year it'll maybe come a little bit below or about that number and next year it should exceed $2 trillion. But just to break out these two difference without the interest bill, we're already running a massive deficit. But to give you guys context as to how big the expense is to carry all this debt, because sometimes these numbers are so big, it's hard for people to conceptualize just the gravity of this situation. The United States owes a trillion dollars a year. And this is payments they must make because who owns the debt? All of you guys do. All of trading partners do, hedge funds do, pensions do, banks, like the banks that you deposit at, Chase, Bank of America, Wells Fargo, they take your bank deposit and they buy US debt. So they lend that money to the US government. So they owe it to the banking system. They cannot default. The US banking system as we know it and society as we know it would collapse and be set on fire if they default on these interest payments. So that is real money, a trillion real dollars that they must pay a year just to hold and manage the debt that they've already accrued.
It's I hopefully you're like if this didn't click and resonate with you yet, you're like, 'Wow, this is insane.' Another insane, jaw-dropping fact for you guys. If you take the interest obligation that the United States has, so this trillion dollar number, you take the entitlements that they must pay and you take in veteran affairs. So this is another way of saying what you could consider fixed obligations. So this is before their defense spending, before any other spending. They're already at 105% of their receipts, which is another way of saying just on the fixed expenses like interest, entitlements, and veteran affairs, they spend more than they make. And this isn't even incorporating, oh well, the defense budget and Trump wants to grow the defense budget by 50%. I'm not even accounting for any of that. So this is pure ponzi-nomics ladies and gentlemen. Just to meet their fixed expenses, they must print. They must issue more debt and borrow more money. They cannot even meet their base level fixed expenses with the receipts that they're bringing in. Mind you, the interest, entitlements, veteran affairs, all of these expenses is growing nearly twice as fast as the receipts themselves. Which gets into this other problem which is debt to GDP. Sure, you can take out debt. How much productive growth are you returning for the debt that you're accruing because if your expenses are growing faster than the growth, than the receipts and your tax receipts, then you have a very, very serious problem. That's more and more and more leverage. That's more and more and more indebtedness. That's more and more insolvency. And then eventually you have to default somehow. And then the last very simple slide just to conceptualize like the math here. 1% of 40 trillion is $400 billion.
So when I say things like oh the 30-year is up 1% since the war started. Just to like put into perspective now, the 30-year being up 1% since the war started is not a literal $400 billion new expense for the government. This is all for illustrative purposes, but just to give you guys again, it's like hard to conceptualize when numbers get this big. It just feels like funny napkin math. It doesn't feel real. But, you know, when I say, 'Oh, the market's pricing in a new Fed rate hike cycle that could take the Fed rate another 100 basis points higher.' I mean, that is astronomical amounts of new expenses for the US government. So, it's one thing to say, well, previously when there was inflation and yields were high, you know, the Fed hiked rates. Yeah. But there wasn't someone that was $40 trillion in debt. That was the US government. That's the unique variable here that's really important to account for. So, another thing you guys know like fixed-term versus variable-term mortgages, right? If you get a 30-year mortgage and it's fixed-term, it doesn't really matter if the rates change because your term is fixed. And then obviously a variable rate is not the case, is that your rate changes with the market. Now to make a long story short, the US government has struggled to sell their debt long duration. So over time, people don't want to buy 30-year debt obligation with the US government or 10-year or even five-year. They've increasingly issued short-term bills and people will ask why the hell would they do that? Why wouldn't they sell 10 and 30-year? Well, they would if they could, but they can't. There's been no market for it. So, think about it in very basic supply demand, guys. If there's an increasing amount of supply and there's not enough demand, well, you're going to crash the price. And in bond math, crashing the price means sending yields higher. So, if the US government tried to finance itself entirely in the 10-year market or the 30-year market, these longer duration instruments, well, they would just send yields to the moon and crash those markets because there's just not nearly enough demand to lend to the government over that duration.
Take Tether for example. Tether will only buy short-term bills, which makes sense. Why would you want long-term counterparty risk with the US government? How are you supposed to account for inflation expectations over that duration? The more debt the government acquires and accumulates and the more the fiscal position just looks like an utter and complete disaster, the demand shifts all the way to the front end where people are willing to lend to the government but in extreme like three months at a time because I don't want to own or to owe the government money and take on that counterparty risk over a long duration. So you can see just how issuance has floated to the front end. Now what's the result of that? Well, you could say, okay, yeah, the 10-year and the 30-year yield has gotten really, really high, but at least the US government locked in their rate. But if they're continually refinancing these things at the front end, then when the Fed hikes rates and when rates change, this is really painful and really difficult for the US government to then continue to roll this debt forward and refinance it. So the US government has to refinance $8.3 trillion worth of debt this year. Mind you, this number used to be under a trillion dollars a year for half a century. But because of everything that I'm contextualizing and describing to you guys, this becomes an astronomically high number. So when the Fed raises rates, the biggest person it impacts and why Trump talks the way he does and Bessent talks the way he does about Jerome Powell and about the Fed and how he needs rates to cut is because it impacts the US government the most. The US government is in an even worse position when the expense to carry their debt is increased. And it's being increased in two ways. One, it's being increased by the open bond market. People just aren't willing to lend to the US government at these rates. They're saying there's 0% chance. There's no way I'm only going to get paid back in highly, highly weak dollars, highly debased dollars. I must get a higher rate to compensate me for all of the expected inflation and debasement. And then the other way that the interest obligation is increasing in expense is when the Fed hikes rates.
So this is the most critical point to understand why hiking rates doesn't solve the problem. It actually makes it worse is to understand the $40 trillion debt obligation, how it's all being refinanced actively and rolled over every single year at the front end, which makes the United States highly susceptible to what the Fed is hiking. And it should be very illustrative and obvious now, like, wow, the United States can't issue 10-year and 30-year debt. There's no market for it. Like, that's the secret that no one's saying out loud. Saying the quiet part out loud is the US cannot sell those instruments anymore. And the debt is so big that we already have over a trillion dollars of expense. And then the last thing I'll say before we go into the next chapter here is if the US government is paying out at least a trillion dollars of just pure cash a year, that money is entering the economy. We already know internationally they're not buying our debt anymore. That money is not being paid out to China. It's not being paid out to India. It's not being paid out to Russia. It's being paid out to the banking system, to the boomer class, to the endowments and the pensions. That's who the debt is. Now, it's been like the US has changed regulations, implied mandates on its institutions domestically just to keep financing itself because someone at the end of the day has to lend it money so that it could keep running these massive deficits and spending money that it doesn't have. And so all of this stimulus, that's stimulus. If I were to if Trump tweets out and says, 'I'm going to give out a hundred or excuse me, if Trump tweets out and says, I'm going to give a trillion dollars out for the midterm elections,' everyone would be like, 'Oh my gosh, that's so inflationary. That's so stimulative.' But if I say the Fed hiked rates, that's stimulative. People are like, 'No, no.' According to my Harvard professor, he says that's not stimulative at all. Yeah, but it's just math, guys.
The US government is putting a trillion dollars at least just on the interest obligations of its debt into the economy. And we'll get into the fact that it's all stimulative. They're also paying out social security. They're also paying out like all of this stuff is why inflation is baked into the cake. Because if you're running trillions of dollars of deficits and you're carrying a debt load of $40 trillion and there's no end in sight, you have to keep borrowing even more and more and more. It's all stimulative. There's nothing you could do about that. So, here's how I'll pose it to the audience today. There's really three ways out. And out is maybe even a dubious term here because higher rates is not a way out, but it's what the Federal Reserve is trying to do for now because it's trying to supposedly fight inflation. Fine. It's not going to work as I just described, and I'll go into more detail, but just bear with me for a second. So, let's say we have three doors here. One door is higher rates. So rates keep rising. Both the Fed rate is going to rise because Powell is going to keep hiking rates to combat inflation and bond and Treasury yields are just going to keep soaring. Which obviously is not good for the United States expense on financing all this debt. Maybe another option is to stop spending so much money. We'll walk through the math on why that actually is not really an option because if you do that you guarantee a financial crisis mathematically. I'll explain that. And then the last option which after you exhaust those two there's only one left is you have to weaken the dollar, is you kind of bail yourself out. You default via inflation. So you don't hard default, but you effectively default by just making the currency extremely weak and running the economy hot while artificially suppressing the expense to borrow money from the market. Like maybe yield curve control where the Federal Reserve prints money out of thin air and lends it to you at a rate that no one else would pay, but you're just forcing the central bank to basically bail you out. And that's how you get debt to GDP down from 120% to something more reasonable and fix the whole problem. But Bitcoin's going to be a million dollars a coin. Gold's going to be $20,000 an ounce, and you won't be able to recognize your grocery bill or what it means to fill up your gas tank in 10 years.
So, let's walk through each of these. Let's walk through raising rates. So, as I said, the problem with raising rates when you have a government that's $40 trillion in debt and their debt to GDP is over 120%. Is as follows. You raise rates supposedly to combat inflation, which by the way, I mean, if I'm calling a spade a spade, I guess the historical relevance of this is totally reasonable. What raising rates traditionally does for those that don't know is it makes it more difficult. It tightens monetary conditions. So, it makes it more difficult to create credit because it's more expensive. So what's the most important thing you guys need to understand is raising rates theoretically or historically strengthens the dollar. You really need to understand that point. It strengthens the currency. Why? Because it creates monetary conditions where it is more difficult to create more fiat units. So obviously if the rates are zero and anyone and everyone can borrow money, get a mortgage, start a business, there's more and more and more fiat being created, we already know that what that's turning on the money printer when there's more and more fiat units. That's debasing the currency, right? We know only 21 million scarcity in many ways is implied value. And so then an abundance of fiat, the more you print, the more you weaken the currency. And so raising rates theoretically will harm the private sector's ability to grow, will harm the private sector's things like profits and cash flow, which might be true. We'll see. We'll obviously on this show, we'll be watching earnings. We'll be watching all of this data. But the old school theory is the Fed will raise rates. That tightens monetary conditions in the private sector because it's not as easy to create new credit and fiat units floating around which in return will reduce the inflationary tendencies because there's a lot less spending and a lot less growth in the economy which should cool prices down right all of these things and then all of that is strengthening to the dollar which is the most important part I'll get to in a second but anyways we keep going so rates go up.
Now, because you have a government that's $40 trillion in debt and has a trillion dollar interest bill already, their interest bill goes up, their deficit gets even bigger. So, how does the US government go from a $2 trillion deficit to a $3 trillion deficit? Well, what if their interest expense goes from 1 trillion to two trillion? That's how it doesn't necessarily need to be more war. It doesn't necessarily need to be more government spending programs. It could simply be interest expense. Mind you, they cannot default on this. They must meet these obligations. So when Powell raises rates, he's adding to Bessent's interest bill. Adding to Bessent's interest bill further blows out the US government's deficit. How is Bessent going to meet these new bills that he just got handed to him when Powell raises rates? Guys, he's running a deficit. He spends more money than he makes as the US government. So, he must sell more bonds. What is selling more bonds into a market that's already struggling with demand given all the supply? It's going to send yields higher. Okay? And then, mind you, Bessent is already paying out a trillion dollars into the economy just to meet interest obligations on all this debt. Powell is adding more debt to Bessent, making the deficit bigger, forcing him to sell more bonds, increase more expense. So, he's further stimulating the economy. And I think even though the private sector might slow down a little bit, we'll see. It's still going to be inflationary because all this stimulus coming from the Treasury is going to outweigh any type of growth contraction that a 25 basis point hike is going to do. So, I don't think you're going to see inflation, maybe they change how they measure it. Maybe they could obviously cheat, but I don't think we're going to see and by the way, we're still in a war. So, it's not like oil is going to cool off anytime soon. You start to have structural commodity inflation, stimulus from the Treasury, but then you get this doom loop death cycle where Powell raises rates, Bessent's interest bill goes up, Bessent's deficit got bigger, Bessent has to sell more bonds, bond yields go up, Powell raises rates again. Well, that adds to Bessent's interest bill one more time. That makes the deficit even bigger. He has to sell even more bonds. Bond yields keep going up because there's more for sale than there's demand. So, you have to send yields higher to clear, right? And so, just to show you guys, the Fed raised rates not too long ago. Just last week, the 10-year went from 4.9% to 5.25%.
So, what I'm saying again, sometimes we're like, 'Oh, the guy in the hoodie in the empty closet and he's just talking his own book with Bitcoin.' I haven't mentioned Bitcoin once. This is math. This is 2 + 2 = 4. Very simple math. And this is what we're living through. This is what is happening. I'm just walking everyone through unbiased what the truth is. So, let me give you guys some more context. Who traditionally buys our debt? Well, historically, it's whoever's running a surplus with us. So guys, for every deficit, there's a surplus. Think of it that way. So the US government runs a $2 trillion deficit. That means there's $2 trillion worth of surplus out there. So Asia ran a $1.8 trillion trade surplus. Okay? So this is Japan, China, you know, China's one trillion of that. Now when we look at the data historically kind of the old monetary order that the Trump administration and really this is becoming bipartisan, it's really if the US needs to get itself out of this it cannot run these massive deficits it has to reshore it has to do a lot of stuff and so the Trump administration has been talking about a new monetary order this is what Bessent joined the US government and the treasury supposedly to do is to reorder the global financial system because the old system was post World War II, everyone was decimated. The United States is going to run a purposeful and structural deficit, allow other countries to run a surplus which will create obviously you're creating jobs like China makes our electronics in the iPhone. Those aren't made in the United States, right? And so you're creating jobs, you're creating opportunity, you're creating an economy and I mean listen, this is what the way it's told in the American textbook. So, you know, obviously I'm American. I'm not saying that this is accurate or this is right. I'm just saying this is what's told here in America is that America wanted the world to get back up on their feet. And one way to do that is basically export like allow everyone else to have the jobs produce the materials. We run a deficit which is the way for the world to kind of piggyback off of our strength after World War II. And then they would these countries Japan, China, etc., etc., They'll take their trade surplus with us and they'll use that surplus to buy our debt which allows us to finance ourselves and run these deficits. So, it's kind of like a giant Ponzi scheme. We purposely run a deficit to give everyone else a surplus. They take that surplus, they lend it back to us, and the show goes on obviously until something like 2008 when the United States doesn't let the banking system and Wall Street fail and bails everyone
And who then gets screwed on a bailout like that? Well, all of the people that you know, China's of the world are like, 'Oh, you're just destroying and eroding our purchasing power, the things that we've been getting paid in and running these surplus in. We're getting less oil, less stuff. You're debasing the currency. You're bailing out. You're abusing your privilege.' And so now, fast forward, that's not what's happening today. Asia is taking this surplus that they're getting in this post-World War II economic order, this Bretton Woods monetary order, and they're not buying any debt anymore. All of the US debt is somehow being financed more domestically than ever. So what is on the screen for the podcast listeners that can't see, only 0.1 trillion, so 100 billion dollars of the 1.8 trillion is going into US long-term bonds.
Say that again. Asia's running a $1.8 trillion surplus. Only 100 billion of that is going into US bonds. And so guys, this is why there's no demand for the long end. There's no way the US can finance all of this trillions and trillions and trillions of dollars at the 10-year, at the 30-year. This is why yields keep going up and up and up. And this is why hiking rates makes this problem worse for the government. And it doesn't even stop inflation because so much of the stimulus into the economy is coming from the Treasury account itself. The Treasury is paying out a trillion dollars into the economy alone just on interest.
So that point made more simply, a hike is just a bigger check in the mail for boomers. And I'm making kind of a joke. Not really though. It is boomers. I think today, you know, the amount of wealth held by people over 70 in the United States crossed over 33%. So like one in every $3 of wealth owned in the United States is owned by somebody that's over 70. That's insane. So it's the wealthiest generation of all time. They've appreciated, they've benefited from the money printer appreciating assets and they own a lot of US debt now that China and Asia more broadly is not interested in getting scammed by the Federal Reserve and the US government. And so again, the government pays over a trillion dollars a year in interest and that's paid to debt holders who spend it and invest in it. Take Tether as an example, guys. Tether does not reinvest what they make into more US debt. What have they been historically and famously doing? Buying Bitcoin, buying gold, investing in AI stuff. So, take that for a trillion dollars worth of payouts a year. People are not buying more US debt. And we know that for a fact because all this data is public, but also because yields would be going down. Yields are going up. Nobody wants to lend to the US government. And that is why you see financial assets like gold and like Bitcoin continuing to appreciate over time is because for all of these reasons. For all of these reasons. I have to cut myself off a little bit and keep this presentation going.
So the second option, so that is why the Fed hiking rates not only doesn't solve anything but makes it worse. It makes it worse because you're adding more interest expense to the government, further blowing out the deficit. Guys, ask yourself really basic logical questions. If you were lending someone money and they were becoming increasingly insolvent, would the rate that you've charged them to lend them more money go up or down? Would they get better or worse terms? Of course they would get worse terms. Of course, the yield is going higher because the person you're lending money to is becoming increasingly insolvent. They're progressing rapidly towards defaulting or paying you back in a severely weaker currency. So, of course, if the Fed keeps hiking rates, of course, yields are going to go higher. Like all of this should be obvious because it's just 2 plus 2 equals 4 math. And I don't really care what these Keynesian economists at universities are preaching and they're like, 'Oh, well, you must not be familiar with the 1980s.' No, I'm not. I wasn't even born. But I don't care because the US wasn't $40 trillion in debt with debt to GDP at 120%. So I don't really care what happened in the 1980s.
So now the second option is well let's just stop spending so much money. Totally reasonable logical thought to transmute through your brain. The problem is what do you want to cut? Here on the screen I have all of the US's expenses from biggest to smallest. Okay. Health and human services, so things like Medicare and Medicaid, $1.5 trillion a year. Social Security, $1.3 trillion a year. Now, the Treasury expense, which has grown to almost $1.3 trillion a year. It is on its way, especially if Worsh keeps hiking rates, to flipping Social Security and being the second largest expense. Our defense budget materially smaller. Veterans Affairs, materially smaller. Everything else is a rounding error. So the big three, health and human services, Social Security, and Treasury are $4 trillion.
So I ask you, what do you want to cut? You want to cut the Social Security program? I mean, I'll get into the math as to why that will cause a financial crisis, but we already know the societal unrest. I mean, Trump will be impeached in no time. You want to stop Medicare and Medicaid? Do you want to just default on Treasury payments? Just everyone that owns debt, US debt, just defaults. You just get wiped out and washed away.
And so, I mean, the problem here is now this is not the debt 120% debt to GDP I've been referencing. This is debt owned by the public, by outside lenders. But we're already at World War II levels of debt to GDP. And it's only going to grow, as I said, because our debt and our expenses are growing much faster than the growth of the economy and our receipts. So, we're getting to like true Ponzi-nomic levels. No country has survived it, etc., etc. Now, let me tell you guys, let me walk you through the math as to why cutting some of these expenses, outside of obviously societal unrest and someone having to lose and foot the bill for everybody else and who knows how much violence that would induce and political warfare. Let's just stick to the math because this is not a, I'm not making a political statement. I'm not making a biased statement for Bitcoin. I'm just walking everyone through the math. Hopefully in English they can understand. So, we've got $40 trillion worth of debt, right? And GDP of 32 trillion bucks. That puts our debt to GDP at 125%. Very simple math. Let's say, now this is illustrative, but the point of like cutting is actually going to make the problem worse, not better. Let's say we need to save $500 billion. And so we make these cuts. Okay, fine. $39.5 trillion is now our debt. It's $500 billion less. But the economy has gone from $32 trillion to 30.5 trillion. We've lost $1.5 trillion of GDP. And so the debt to GDP has actually gone up from 125% to 130% because 40 over 32 trillion is 125. 39.5 over 30 and a half trillion is 130. So obviously the point that I'm making is the debt is not falling more than the economy is falling. And the hidden point in here is that your spending is someone else's income. So much of the GDP is a sham, is giving boomers and people their social security checks, is Medicare and Medicaid. The whole medical industry is a separate episode of just I think it's 25% of US active employment is in the medical industry. So like if you harm that industry then you cause a financial crisis. All of a sudden GDP is falling a lot faster than your expenses, right? If you just stop paying the trillion dollars of interest obligation on top of the debt, well then you're causing GDP to go down far more than you are fixing the debt. And so the problem is how do you cut your expenses without impacting the GDP? And how do you cut your expenses while remaining in office and getting elected and without, you know, people hurting each other and harming each other and total chaos and societal unrest? I mean, there's both literal mathematical reasons and non-mathematical reasons, but hopefully that makes sense is that debt to GDP, guys, it's very simple math. If the debt is growing faster than the GDP, well, the number is going to go up. Or if it's falling less than the GDP, well, the number's going to go up. And the whole point is not to just get us from 40 trillion to 39 trillion at all costs. The whole point, you must get the debt to GDP down. You have to have to have to. That's the math.
Another thing that isn't widely known to the public is what's known as the carry trade. So the rest of the world, this is high-level math, but it's very simple to understand. The rest of the world, this is just balance sheet, has $14 trillion worth of debt. So they've borrowed $14 trillion. It's a liability that they owe. It's owed by borrowers outside of the United States. This is international, non-US, foreign debt. 14 trillion. You must pay that debt back in US dollars. So they borrow the dollars, that's the currency it's owed in, 14 trillion. Now on the other side of the balance sheet, the asset side of the balance sheet, the world owns $22 trillion of US assets, a little less than half of that is US government debt. Now this is what's known as the carry trade. You borrow currency to buy assets and the hope is that the assets appreciate against the currency. And this is obviously a very good trade. This is what Michael Saylor does. This is what we all do is if I can short dollars, I want to owe dollars and own Bitcoin. That's the name of the game because they keep debasing the currency and anything, any asset that is fixed in supply or productive like a company like Meta that produces growing amounts of cash it will appreciate against fiat shorts. Long assets makes sense.
Now here's the problem. The problem is and it's actually very simple. The problem is if Kevin Worsh hikes rates and as we described that should strengthen the dollar. Well, when the dollar gets stronger, think about the trade I just described. If you are short dollars and long US debt, but the Fed raising rates strengthens the dollar and yields are going higher, which means US debt is crashing. What happens? Well, you have to start selling assets to meet the obligations that you owe. If the dollar, this trade is fine as long as the dollar and US debt behaves, as long as the dollar continues to weaken and US debt doesn't get too volatile, no problem. But if the MOVE index spikes, if the dollar strengthens, if any of these things happen, then you get this really cascading sell-off where foreigners start dumping US debt and dumping US assets like US stocks to meet the obligations that they owe. So you have to understand the entire world is short dollars and long US assets. So if the dollar strengthens, everything dumps and we go into a violent recession. Violent recession. S&P 500 down 20% on open, circuit breaker halt, everything. Layoffs, unemployment spiking. So this is why a weaker dollar is baked into the math. The dollar literally cannot strengthen too much. Literally.
So, this tweet was timely from Joseph Wang. He tweets, 'Foreigners hold dollars because that's what they need to access the great casino.' And the great casino, he's joking, is the US equities market. They bought a record amount of stocks in Q2, $425 billion. That is a record in one quarter. So again, the bigger position in US assets, the more things that they need to sell if the market starts misbehaving. So here you have a market where US debt is getting slaughtered. Yields are spiking. And then you have a Fed who's hiking rates which is adding to the interest expense of the US government which is further blowing out the deficit which is forcing them to sell more bonds which is driving yields even higher which is driving now the dollar is getting stronger because the Fed is in a rate hike cycle which is going to force foreigners to just dump all their bonds. And this is why yields just keep marking higher highs every single day is because it's this feedback loop. It's a feedback loop, guys. It's just math. I'm just literally evaluating a balance sheet.
So, anyway, I mean, this is an illustrative slide. Maybe not the best, but let's say you're a Brazilian business and you owe a million dollars. You have a million dollars worth of debt, but the dollar gets stronger. Well, now what used to be five real for $1 is now six real for $1. And so your obligations have grown tremendously and in order to meet the difference like maybe your business isn't growing as much as the dollar is getting stronger because of what central planning decision Kevin Worsh is making then you have to start selling the US equities and the US debt that you owe on the other side of your balance sheet the asset side of your balance sheet which makes up for the liabilities right so you know a Brazilian business would sell what it owns which is US stocks or US debt because it owes dollars. And so if you take all of this into account, here's the feedback loop. The dollar gets stronger. Dollar debt then gets heavier to meet obligations. So the outside world starts selling treasuries. More bonds hit the market because so sorry it's sometimes it gets I hope you guys are following. Worsh raises rates, right? Dollar gets stronger. Dollar debt gets heavier. World sells treasuries. Mind you, when Worsh raises rates, he added interest expense to the US government and Scott Bessent, which blows out the deficit even further, which Bessent then has to issue even more bonds, which all of this is sending yields extremely high. Dollar strengthens, dollar debt gets heavier, world sells treasuries, blah blah blah. It just keeps going and going and going. And so you can think of the total issuance of US debt is not only the debt that so Worsh raises rates. Okay, Bessent now has to issue more bonds because his interest expense has grown, the deficit is growing, but then on top of that, foreigners are being forced to sell US debt. And what makes all of this worse? Well, war makes all of this worse. Higher oil prices makes all of this worse. Like think about the Maslow hierarchy of needs. If a country is not getting enough oil and energy because of the conflict in Iran, do you think that they're going to prioritize US debt or their people in having a warm home or running water? I mean, they're going to sell US government debt to get oil. I mean, so this gets into the conspiracy theories, but is the US government purposefully engaging in this never-ending war and sending yields higher just to create the environment to create a new monetary order or a new monetary structure. Another conspiracy theory that I've heard is that the US government wants yields to spike because it wants to buy its debt back really cheap. Like one way I'll get into in a second, you can implement yield curve control, send rates to zero, run it hot while artificially capping your interest expenses and then buy all the debt back after revaluing gold on your balance sheet and Bitcoin appreciating on your balance sheet, something like that.
So anyways, if you can't cut programs and raising rates only makes the problem worse, what can you do? The only thing you can cut is the interest expense. That's the only line item. This $1 trillion worth of expenses that's now 1.3 trillion which is on its way to two trillion which will blow the deficit out to three trillion. Well, you can cut that. And that's again like this is all just math. This is increasingly what they have to do. And that's why Trump is saying the US interest rate should be less than 1%. This is I mean Trump is saying the quiet part out loud. Maybe people are discrediting him because they don't I mean and I don't know how much of this he's aware of or what he's told to say. I have no idea. But it's just math.
So again, you cut programs like Medicare, Social Security, defense. Sure, 500 billion less income that flows into the economy. So the denominator shrinks. So yes, you're cutting the top line item a little bit, but the economy is getting hammered. You can cut your interest rate from, you know, 5% to 2%. And let me walk you through this math, and this is the only way out. This is kind of my point. Like every other way is mathematically just a crisis, a collapse, just doesn't work. So, oops, clicked the wrong button there. So the math here is and this is how you delever the balance sheet. This is how you take debt to GDP from 120 plus percent to 20%. Is the economy grows faster than your debt costs. And again it's very simple when you think of debt to GDP. Okay you have $40 trillion of debt and $32 trillion GDP and the $40 trillion number is growing faster than the $32 trillion number. The way to delever it is get the $32 trillion number to grow faster than the $40 trillion number. Well, the best way to do that, listen, you can stimulate the economy. You can run it hot. That's obviously very inflationary. Very inflationary means that yields are going to go up because no one in their right mind would be willing to lend to the US government at real rates negative. If inflation's at 10% and I'm only getting paid 3%, my life is getting 7% more expensive guaranteed at minimum. And we've talked about this on the show. So, how does the US government do it? Well, this is what I've been saying. Some form of yield curve control. You can set the Fed funds rate to 0%. You can cap long duration yields at 2%. Where the Federal Reserve comes out and says the yield will not be higher than 2%. If you need to sell US debt or if the government needs to sell new issued debt and there's no market for it, we will print money and we will buy it. We will absorb it. This is obviously highly inflationary, but it sets a cap as to the debt costs. And then all of this new stimulus and all of this new printed money into the economy sends the GDP soaring. So you're getting an artificially soaring GDP in dollar terms, right? So it's not artificial, it's nominal in dollar terms. And you're getting an artificially capped debt expense. And that's how you take a debt to GDP from 125% which is like 40 over 32. But maybe it goes from 40 over 32 to 45 over 50 and all of a sudden you're at less than 100 and you're delevering the balance sheet. You're fixing the math. But you must fix the math by that's a severely weaker dollar. Severely weaker dollar, which is another way of saying incredibly inflationary. So what I just described is what's now on the screen. So today we're at 125%. Over the next decade, how can we get to 100% and basically fix our problem? Well, you can cut rates to zero. You can refinance the debt cheaply. You can then just run the economy hot and have the Fed lend to the US government with printed fresh currency if there's no market for it. And your debt to GDP, like let's say the economy is growing at 6%, the debt's at 3%. Over the next decade, you can go from 125% to 90%. That's how you do it. And nobody pays the debt back. You know, it's just your dollars will just get you a lot less stuff. Bitcoin will be a million or whatever, probably higher. Gold will be $20, $30,000 an ounce. You know, food will need to be, all commodities will need to be repriced against the currency. And this could be like the beginnings of a new economic order. I have no idea what Bessent and Trump and these guys are planning. And you know, we know that Bessent wants the Fed and the Treasury to have more of a partnership and a relationship. One way to do that is again have the Federal Reserve just be the yield curve control buyer of last resort to lend money to the government which will cap all the interest expense. They can wipe the interest expense to zero, run the economy hot, inflate the whole thing away.
That's the math. Every other option mathematically doesn't work. It doesn't matter who you voted for, what you believe in. None of that matters. It's 2 plus 2 equals 4. Raising rates increases the interest expense for the government, which further blows out the deficit, which forces them to issue more debt, more bonds, which further drives yields up. And this also has been strengthening for the dollar, which if you just take international balance sheet, they owe 14 trillion against $22 trillion worth of assets. If that what they owe is strengthening, then they have to start selling the assets that are on their balance sheet to meet the obligations. So you're getting spike in yields, crashing US assets and a strong dollar all and the US government's becoming increasingly insolvent and unable to finance itself by issuing more debt. It's I'm just telling you guys it's not going to work. It's not it's mathematically impossible. And then the other thing, sure you want to cut expenses, cut what? Cut what? Which will cause the debt obligation to go down more than the damage that you do to the economy. It's it just it's just 2 plus 2 equals 4, guys. It's just math. It's just math. Keynesian economists can be mad at me all they want, but all I've been doing my entire Bitcoin career is math. Oh, there's only 21 million coins that will ever be issued. An increasing amount of fiat currency printed every single year. Oh, yeah. I should probably own this thing. Oh, no. You're an idiot. You're a college dropout. No one's going to believe you. You should just go get a job. No, no, no. I'm just just doing math over here. Don't mind me. Just doing math.
So, the last thing I'll leave you guys with because some of the questions I've been getting is like, okay, so you're saying everything is good for Bitcoin. Yes. A failing, a failing old analog fiat Keynesian monetary system is very good for Bitcoin. This is why I've never been more bullish personally myself. However, right now what we're experiencing is the dollar is getting stronger, yields are going up, and everything is being sold off. And everything is being sold off because of what I just described to you guys. So the stock market's been having a rough few days, bonds are being dumped and yields are soaring, right? And Bitcoin is actually faring pretty well. Like we saw gold take a 5% hit late Sunday night yesterday. And Bitcoin is hanging around. I'm actually very proud of its performance. I don't know how much Bitcoin is owned of the 22 trillion because Bitcoin is still small. I think if you look at the on-chain data and some of the Bitcoin metrics, it looks like we've run out of sellers and this thing is really sniffing out this big print that's coming, this sovereign debt crisis that I just mathematically walked us through. And but I just want to warn you guys, I'm not saying Bitcoin's going up to 200K tomorrow. It might have a flash crash down. We might be days or weeks or months away from a financial crisis, which will give these politicians the right to do what I'm saying, slash rates to zero, implement yield curve control, the only mathematical way out of these balance sheet problems. But, you know, it might be a little bit turbulent to get there. So, just a fair warning right now. As I woke up Monday morning, I saw gold getting hammered, bonds getting hammered, everything getting hammered. Gold down, yields up. That's this very classic dollar up, gold down, yields up. You know, everything's starting to sell off a little bit. And this is where your old school, you know, people are like, 'Oh, this is a risk-off, risk off.' And Bitcoin's a fancy tech stock. Risk off. So, hang in there. Don't take too much leverage. Understand the big game. Understand the math. Don't let anyone tell you, 'Oh, this is too complicated. You'll never understand it. Oh, you needed to go to Harvard and learn economics.' None of that's true. Really simple. 2 plus 2 equals 4.
So, to end my little presentation here, every road ends in a weaker dollar. It's baked in the cake, guys. It's baked in the cake. So, this is why I think Bitcoin will continue to be monetized at a rapid pace. I mean, there's all sorts of conspiracy theories. Okay. Well, if the Trump administration and Scott Bessent knows everything that I just presented, which by the way, he does. Well, why are they so interested in Bitcoin? Why are they so interested in stablecoins? Stablecoins are buying the front end of the curve. Like all of this, there's interesting conspiracy theories and speculative this and that and the third. I don't spend too much of my time on it because I have more important things to do. TL;DR, Bitcoin's going to the moon. I've never been more bullish. This macro setup is ripe for a ton of bailouts and new fiat liquidity and things like yield curve control and hard assets need to get repriced against what structurally must be mathematically a severely weaker dollar.
Okay. Strike update. Testing on interest on cash is going incredibly well. We'll likely roll that out to everybody next week. So first week of October. So that's probably going to start it out at 3.5%. I know I've talked about much higher rates. I need a few licenses to pay substantially more than that, which we're working on obtaining. But the big big big strike update is interest on cash and stacks, which is having multiple different wallets. Like people want to set up wallets for their kid, for their wife, for different for savings, for spending. So, some of the most requested features should be launching in the next week. And then once we get those out the door, I'll give a more broad strike update and talk about what is next. I've hinted at some things like custody. Okay. I'm actually off. I've got some business travel this week. Not off, like I'll be around and responding to you guys, but off in regards to recording content. So, I've got nothing until Friday. But Friday, I told you guys once a week at least every week, we'll do the new Q&A segment. So you guys can call in and leave an audio message at ask.jackmallers.com. Ask me whatever you want. It could be totally anonymous, Bitcoin, macro, life, anything related to this, and I'll spend at least one episode a week answering those. And hearing your guys' voice. It's been a ton of fun. Great feedback on that so far. And then in the coming weeks, we'll get back to Bitcoin education episodes, Bitcoin history episodes, and some animation educational content. Cool. Sorry, I'm speeding myself up here. I want to keep these under an hour and I think we're just about an hour. So, with that, I'm actually going to the Bears game. Saquon is a Bitcoiner. He's playing my hometown Bears. So, I guess it's a win-win situation, but obviously I'm pulling for the injured Chicago Bears. But if we do lose, I hope Saquon has 10 touchdowns. Fellow Bitcoiner, if you guys didn't know that, cheer our boy Saquon on throughout the year. All right. Comments, questions, feedback, anything, leave it below. I love you guys. Thanks for all the support. Seeing you guys around town, giving you hugs in airports and stuff continues to just be the greatest joy. It's so much fun and I'll catch
