Kicking the can down the road

A major problem for Trump’s new administration is that the United States is set to refinance $10 trillion in debt in 2025, $2 trillion of which is due in April alone. A repricing on this scale only occurs, when due to the irresponsible quantities of debt issued by previous administrations, vast amounts of bonds come to maturity at the same time. To prevent emptying their own cash reserves and causing a budgetary crisis, the government will simply issue more bonds and use the money to pay off the $10 trillion due this year. In other words, the government will “kick the can down the road.” No surprise there!

Overpriced Bonds

The cost of living crisis under the Biden administration has caused the federal reserve (our good friend Jerome Powell) to hike the interest rates to make borrowing expensive, which in turn will bring down liquidity and prevent inflation. For example, the coupon on a 10 year treasury note is around 4.63% today, whereas 10 years ago it was only 2.53%. This poses a unique problem for Trump, who has to refinance $10 trillion worth of debt with coupons of 2.53%, and replace them with treasury notes that will cost the US government twice as much - essentially doubling the cost of servicing the debt.

This has created a clear incentive for Trump and Bessent to bring down the interest rates and issue bonds with lower yields. Unfortunately for them, the FED has resisted increasing the global liquidity thus far - with (our good friend) Jerome Powell holding onto his mandate of fighting inflation. As Trump’s tariffs have introduced a lot of uncertainty into the market (and markets hate uncertainty) - Powell has suggested acting too early could wreck the dollar and drive up prices. The friction between these two powerhouses is enough to make the market volatile, with the global economy yearning for a liquidity injection; not realising a detox might be necessary.

Rock and a hard place

This early in his administration, this might be a good time for Trump to endure this short term pain, in order to set the precedent with the FED that it’s gonna be cheap dollars from here on out. Either way, all roads lead back to currency debasement:

If the FED gives out and the money printer turns back on, as we are already seeing the indicators of, then expect to see a return to high asset prices as the dollar devalues.

If the FED tries to keep rates high the end result is the same - as the debt refinancing will become too costly, and the government will have to resort to QE or rate cuts eventually.

Global liquidity will have to increase substantially in the short term or very dramatically in the medium term.

All roads lead to Bitcoin ;)

Markets do not trade off of announcements, they trade off of liquidity. Bitcoin is a pure expression of currency debasement; a true reflection of the global opinion on the state of fiat liquidity. As the purest free market instrument to express investor sentiment, when liquidity is low and the dollar is high, we see crashes like today.

But you show me cheap dollars - I show you $500,000 Bitcoin.

And cheap dollars are coming…