Now I Know How We Pay Off $36 Trillion of National Debt

It’s all about Bitcoin

Welcome to Macro Mashup, the weekly newsletter that distills the content from key voices on macroeconomics, geopolitics, and energy in less than 10 minutes. Thank you for subscribing!

Macro Mashup aims to bring together the greatest minds in Finance and Economics who care deeply about current U.S. and international affairs. We study the latest news and laws that affect our economy, money, and lives, so you don't have to. Tune in to our channels and join our newsletter, podcast, or community to stay informed so you can make smarter decisions to protect your wealth.

This week, we are going to dive into lateral thinking and Bitcoin as the answer to all our woes.

People Desperately Need Lateral Thinking

Lateral thinking and linear thinking are two distinct approaches to problem-solving, each with its own characteristics and applications. I looked up lateral thinking on my favorite AI, Perplexity.

It offered the following. I think it’s pretty good.

Lateral Thinking

Lateral thinking involves approaching problems from new and unexpected angles, often leading to creative and innovative solutions.

• Creativity: Encourages thinking outside the box and developing novel solutions that are not immediately obvious.

• Flexibility: Allows for multiple possible answers, emphasizing the plausibility of explanations rather than a single correct answer

• Problem-Solving Style: Involves discarding traditional modes of thought and preconceptions, focusing on inspiration and imagination.

Linear Thinking

Also known as vertical thinking, linear thinking involves a logical, step-by-step approach to problem-solving, aiming for a direct solution.

• Logic and Order: Follows a clear, sequential process to arrive at the "right" answer

• Single Solution Focus: Typically seeks one correct answer based on given facts.

• Problem-Solving Style: Relies on conventional logic and reasoning without deviating from established paths.

I have written before about crypto as a solution to our economic problem, and now it looks like something significant could happen. It’s a very lateral solution.

I will get to that quickly, but first, we have to take a slight detour.

I wrote a thread on X recently. It went nuts, really crazy.

X is a serious bro club. Lots of people swap massive amounts of information, some of it very high-quality.

There are some very big accounts: hundreds of thousands of followers (@realdonaldtrump has 94MM followers). I have 160…

The algorithm values time on the app. So, the algorithm loves people hanging out and having conversations.

There is a variation on a regular post that X loves more than any other: the thread. A thread is a series of posts stapled together. It means people spend more time on that series of posts.

When X sees that happening, the alogbots go crazy and start spreading the word.

A regular post by me will get maybe 200-500 impressions. Something happened when I wrote a thread that got 38k impressions.

I summarized a podcast between Grant Williams, someone I follow regularly, and David Murrin, a geopolitical forecaster.

(If you’re interested - it’s a 5-minute detour. I have put the link at the end).

One of the critical elements of the discussion was lateral vs. linear thinking.

It seems people were fascinated by the discussion.

Linear thinking does not help when it comes to figuring out our current geopolitical and macroeconomic situation. We are about to become toast.

At $36 trillion of debt, with an average rate of 3%, we are adding to the pile at over $1 trillion each year - the miracle of compounding. And the rate is climbing.

The more debt we have, the more our economic output—GDP—is devoted to servicing that debt and entitlements.

And the less we have to invest in productive activities. Just managing to service your debt, let alone repay it, is like gradual drowning. It’s apparently why 75 million kicked out the Democrats and said “enough!”

Bitcoin Baby

How does Trump help? Great question.

Here’s the answer: Bitcoin. Really?

Bear with me. As I said, I have written about this before: the magic of swap lines and a strategic Bitcoin reserve.

Repaying All That Government Debt Will Need Some Magic

I was hoping not to have to write about it again because I am deeply skeptical of investing in something on a ‘number go up’ basis.

But here we are. Stocks trade with scant regard to their fundamental value. ETF managers make most investment decisions based on flows and index weights. The share of passive investors has increased from 2% to 50% over 30 years.

That means 50% of investors rely on fund managers driven by index mandates to make investment decisions.

Each contribution to an S&P 500 index ETF automatically gets allocated to the weightings set out in the fund prospectus. No fundamental analysis is taking place.

Every investor in those funds watches their monthly statements, hoping to see values rise and move to the right.

So, perhaps investing in Bitcoin on the same basis isn't so strange. There are even Bitcoin ETFs to facilitate that.

A friend, former boss (one of the better ones), and MacroMashup subscriber—you know who you are—sent me a YouTube video of Michael Saylor’s appearance at a Cantor Fitzgerald Crypto Conference.

(If you are interested, I have included the link at the end).

Michael Saylor is the CEO of Microstrategy (stock ticker MSTR), a company known for its business intelligence software and the largest corporate holder of Bitcoin.

Since 2020, MSTR has aggressively acquired Bitcoin, borrowing to do so, and now owns 386,700 bitcoins—at $97,500 BTC, a ~$37.7 billion asset value.

The gap between the two lines represents a 256% premium over the value of MSTR's Bitcoin holdings. It reflects the added value of the low-cost debt and equity that MSTR uses to acquire its holdings.

It is a highly speculative stock, but Saylor is a true believer and has no intention of selling any of the company's Bitcoin.

Saylor makes a strong case for Bitcoin as the asset of the future, one unfettered by the constraints of traditional transfer mechanisms, national boundaries, and the risks that other hard assets such as real estate face (wear and tear, taxes, repair, and maintenance).

He makes the case that the capital markets are available to a small fraction of the companies driving the economy. The cost of joining that rarefied cohort—becoming a public company—is so large that most companies cannot enjoy the benefits.

He believes Bitcoin is the answer to most of the economy’s problems. Again, the link is at the bottom of this newsletter. I will not make the case, but he makes a compelling argument.

The Politics of Bitcoin

The presentation's title includes the phrase “The Red Wave.” Saylor is optimistic that the Trump administration will facilitate Bitcoin's rise.

In particular, he is encouraged that, since the GOP controls the House, Senate, and White House, the legislation proposed by Senator Cynthia Lummis (R-WY) can become law.

Lummis has proposed the BITCOIN Act (Boosting Innovation, Technology, and Competitiveness through Optimized Investment Nationwide Act) to establish a strategic Bitcoin reserve. Key aspects of this proposal include:

1. The U.S. Treasury would purchase 1 million Bitcoins over five years, representing approximately 5% of the total Bitcoin supply.

2. The U.S. Treasury would operate a decentralized network of secure Bitcoin vaults to ensure high-level physical and cybersecurity for the nation's Bitcoin holdings.

3. The purchases would be financed by diversifying existing funds within the Federal Reserve System and Treasury Department, including potentially converting some gold certificates held by the Fed into Bitcoin

4. Objectives:

   • Reduce the national debt by half by 2045

   • Position the U.S. as a leader in financial innovation

   • Serve as a hedge against inflation and dollar devaluation

   • Bolster America's balance sheet

5. The act would guarantee the self-custody rights of private Bitcoin holders and emphasize that the strategic reserve would not infringe upon individual financial freedoms.

Senator Lummis argues that this initiative will shore up the U.S. dollar as the world's reserve currency and turbocharge the U.S. economy.

Let’s assume Saylor is correct and that Senator Lummis gets traction on her proposed legislation.

Here’s how it might work:

1. Monetize the market value of gold held in the Federal Reserve system - we own 261 million ounces at a book value of $42 vs. current market value of ~$2,700.

2. That nets ~$700 billion.

3. Issue another $300 billion in Treasury bills.

4. Buy $1 trillion in Bitcoin

5. Grow that Bitcoin at an average annual rate of ~$14%

6. Realize $16 trillion in 2045.

Where does Trump matter in all of this?

Well…

At the 2024 Bitcoin Conference in Nashville, he outlined his vision for cryptocurrency in the United States. The highlights are:

1. Global Leadership in Cryptocurrency: Trump emphasized his commitment to making the U.S. the "crypto capital of the world" and a "Bitcoin superpower," arguing that if the U.S. does not embrace cryptocurrency, countries like China will take the lead in this sector

2. Strategic Bitcoin Reserve: He proposed the establishment of a national Bitcoin reserve (Lummis’ legislation), pledging that his administration would retain 100% of any Bitcoin acquired by the U.S. government, viewing it as a permanent national asset. This reserve aims to support financial stability and reduce national debt.

3. Regulatory Changes: On his first day in office, Trump promised to remove Gary Gensler, the current SEC chair, suggesting he would appoint a new chair who would support rather than obstruct cryptocurrency innovation. He also announced plans to create a Bitcoin and crypto presidential advisory council.

4. Support for Miners: He pledged to provide cheap electricity to Bitcoin miners, aiming to position the U.S. as the leading destination for Bitcoin mining operations

5. Historical Context: Trump noted that Bitcoin has become the ninth most valuable asset globally and hinted at its potential to surpass gold's market cap.

Of course, he won the crypto vote, and Gensler is already on the way out.

Saylor presents a few charts specifically on the potential iterations of the plan:

This one illustrates the Lummis proposal.

He then illustrates how it could be turbocharged:

He cites some historical precedents:

Takeaways

1. Linear thinking will not help solve our geopolitical or economic problems.

2. Cryptocurrency, particularly Bitcoin, can potentially create an asymmetric payoff as an investment class.

3. Senator Cynthia Lummis has proposed the creation of a Strategic Bitcoin Reserve, which has a good chance of becoming law.

4. This reserve can potentially pay off our $36 trillion national debt if properly established.

5. Paying off the debt will create economic prosperity unseen for a generation.

6. It will also strengthen the U.S. Dollar as the world’s reserve currency and place the U.S. at the center of the world’s economy and geopolitics.

7. President-elect Trump and his Treasury Secretary and Commerce Secretary fully support this initiative.

Footnotes:

1. X-thread on David Murrin

2. Cantor Fitzgerald conference on crypto, featuring Michael Saylor: