I gave an interview to the Financial Times, and for accuracy, I asked them to submit their questions in writing, which I answered. However, instead of publishing our exchange, they misrepresented my remarks. For the sake of accuracy, I am providing the actual questions and answers here for your perusal. In a world rife with toxic conflict and partisanship, I strive to be accurate; distortion and sensationalism pose a threat to everyone's well-being. Sometimes the media helps, but sometimes they have other agendas of their own. For me, the choice was either to remain silent and play it safe, or to attempt to speak in an analytical, nonpartisan manner and risk being politicized. For me, the risk of not speaking out was greater. If you'd like to know what I was asked and what I said, here's what I said. Debt, Inflation, and the Federal Reserve 1. How do you think Trump's tax and spending promises impact this trend? Are you more sensitive now than ever before? Yes. The worsening condition is due to years of overconsumption, overeating, smoking, etc. These cumulative effects have led to a situation where the overspending projected by the new budget is likely to trigger a debt-induced “economic heart attack” in the very near future—I’d estimate three years. Let me explain. The credit circulatory system, like the human circulatory system, delivers nutrients to every part of the body. If the income generated by credit and debt is sufficient to service the debt, the system is functioning well and is healthy. However, if debt and debt-service payments grow faster than income, they accumulate like plaque, crowding out other spending. This can easily happen. The U.S. government's debt service payments currently amount to about $1 trillion in interest annually and are rising rapidly, and $9 trillion. This squeezes out other spending. The worse this situation gets, the closer the country gets to a debt-induced economic heart attack. Moreover, when existing debt is high and new debt created for deficit spending is high, the federal government will spend about $7 trillion next year, so in addition to the $1 trillion it must sell to pay interest and raise funds, it will have to sell about $2 trillion in debt. The situation could get worse because creditors will sell debt assets when they worry they are no longer a good storehold of wealth. At this stage, the central bank must decide whether to allow interest rates to rise and trigger a debt default crisis, or to print money and buy debt that others will not buy in an attempt to lower real interest rates, but this will reduce the value of the currency. Another classic sign that the debt cycle is about to end is that the central bank prints a large amount of money and buys debt, and then suffers heavy losses on the debt assets purchased, so that at this stage both the central bank and the central government need to borrow more money. This causes the central bank to print more money to repay the huge debt. According to all the classic theories, we are in the late stages of a major debt cycle. If policymakers don't change their policies, debt repayment problems and debt supply and demand problems will emerge simultaneously, ultimately leading to a debt-induced "economic heart attack." 2. Trump has threatened to fire Federal Reserve Chairman Jay Powell and recently ousted Federal Reserve Governor Lisa Cook. How dangerous would it be if the Fed lost its independence amid soaring debt? The long tradition of central banks maintaining independence from central government political leaders stems from the widespread belief that government leaders, for political reasons, would be inclined to lower interest rates and ease credit, which would be detrimental to creditors because it would lower the effective interest rate for bondholders. If bonds are no longer a good storehold of wealth, we will see a decline in the value of currency. Currently, international investors holding dollar bonds are reducing their holdings of U.S. bonds and increasing their holdings of gold due to geopolitical concerns. This dynamic is also a typical symptom of the late stage of the major cycle. 3. If a politically weakened Federal Reserve allows inflation to "overheat," what will this mean for bonds, the dollar, and the U.S. credit rating?
This will cause the value of bonds and the dollar to decline, which, if not corrected, will make them ineffective stores of wealth and lead to the collapse of the monetary order as we know it.
Trump’s interventionism in business
4. Trump acquired a $10 billion stake in Intel at “zero cost,” took a cut of Nvidia and AMD’s Chinese revenue, and imposed a golden stock system on U.S. Steel. Do you think these are early signs of state capitalism with American characteristics? Yes. As is typical of big cycles, widening disparities in wealth and values lead to the rise of right-wing and left-wing populism, as well as irreconcilable contradictions between them that cannot be resolved through democratic processes. During such periods, democracy weakens and authoritarian leadership increases, as large segments of the population expect government leaders to control the system to keep it running smoothly—for example, "keeping the trains running on time." Furthermore, in a world characterized by major conflicts and even wars between nations, governments increasingly control the operations of businesses. For example, whichever country wins the technological and economic wars now prevails in more significant geopolitical and even military battles. Consequently, governments increasingly control businesses and the economy. The phase of the big cycle we are in is most similar to the period from 1928 to 1938. 5. Some call it authoritarianism, others say it resembles socialism. How would you describe Trump's economic model? I'm reluctant to label it because labels can easily trigger emotional reactions and lead to adverse reactions. I'd rather explain the mechanics of what's happening in a less emotional way, and that's what I'm doing. 6. How do these interventions affect the U.S. reputation as the safest place for capital in the world?
No Response
Markets and Global Position
7. Do Trump's actions undermine global confidence in U.S. Treasuries, the dollar, and the sustainability of U.S. debt?
Yes, but I would not attribute this solely to Trump's actions. As mentioned earlier, the dynamics I have described have long been ongoing under presidents of both parties, although they have intensified since 2008 and accelerated since 2020. 8. Will this interventionism accelerate the decline of the United States as the world's financial safe haven? No response Cryptocurrency and the US Dollar 9. Do you think deregulation will threaten the US dollar's reserve currency status?
No,
but I do think the dollar and other reserve currency governments’
pose a threat to their attractiveness as reserve currencies and storeholds of wealth, which is what’s driving up the prices of gold and cryptocurrencies.
10. Does stablecoin exposure to U.S. Treasuries pose a potential systemic risk?
I don’t think so. However, I do think the decline in the real purchasing power of U.S. Treasuries is a real risk. If stablecoins are well-regulated, this shouldn't pose any systemic risks. 11. Can cryptocurrencies truly replace the US dollar, or do they pose entirely different risks? Cryptocurrencies are currently a supply-constrained alternative currency, so, all else being equal, an increase in the supply of and/or a decrease in demand for the US dollar could make cryptocurrencies an attractive alternative. I believe that most fiat currencies, especially those with significant debt, will struggle to serve as effective stores of wealth and will depreciate relative to hard currencies. This occurred during the 1930s-1940s and 1970s-1980s.
Elite Silence and Selective Outrage
12. When New York City mayoral candidate Zohran Mamdani proposed socialist ideas, CEOs and billionaires reacted strongly.
Why did these people remain silent when Trump was destroying free enterprise? I believe the political and social situation today is similar to what happened globally between 1930 and 1940, in that, as in 1930 and 1940, wealth disparities, value disparities, and policy views have become more extreme, while willingness to compromise, acceptance of defeat due to election results, and trust in the system have decreased. I believe most people remain silent because they fear retaliation if they speak out. 13. Does the real threat to American capitalism come from the far left or from Trump's interventionism? The threat stems from the five forces that have always driven major cyclical changes. They are: 1) a severe debt cycle that could lead to serious debt problems, which would threaten the existing monetary order; 2) major political problems within countries, which would threaten the existing political order; 3) major geopolitical problems between countries, which would threaten the existing world geopolitical order; 4) major natural disasters such as droughts, floods, and epidemics (the most important of which is climate change); and 5) the huge impact of human creation through new technologies (especially artificial intelligence). The interaction of these five forces will trigger huge and unimaginable changes in the next five years.
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