Original title: Black or White?

Author: Arthur Hayes, Founder of BitMEX; Translated by: 0xjs@Golden Finance

When asked about his pragmatic attitude towards implementing China's economic system, former Chinese President Deng Xiaoping once said this famous saying: "It doesn't matter whether the cat is black or white, as long as it catches mice, it is a good cat."

If you have ever heard Kamala Harris speak without a teleprompter, you know what I am talking about. There are similar sophistry in the land of "freedom", pickup trucks and Doritos. I want to give my opinion on a malleable economic "ism" in the peaceful economic system under the rule of the United States. I will call the current policies implemented by Trump fans and newly elected President Trump American capitalism with Chinese characteristics.

The elites who ruled Pax Americana didn’t care whether the economic system was capitalist, socialist, or fascist, but whether the policies implemented helped them retain power. The United States ceased to be a purely capitalist country in the early 19th century. Capitalism meant that the rich lost money if they made the wrong decisions. That was outlawed back in 1913 when the Federal Reserve was founded. As privatized gains and socialized losses weighed on the country and created an extreme class divide between the many deplorable or sleazy people who lived in the interior and the upright, respectable, sophisticated coastal elites, President Franklin Roosevelt had to correct course and hand out some crumbs to the poor through his New Deal policies. Then, as now, expanding government relief for those left behind was not a policy that was popular with the wealthy so-called capitalists.

The pendulum swung from extreme socialism (in 1944, the top marginal tax rate on those earning over $200,000 was raised to 94%) back to the unfettered corporate socialism that began in the Reagan era in the 1980s. Since then, neoliberal economic policies of central bank money printing, handing money to the financial services industry in the hope that wealth would trickle down from the top, were the status quo before the 2020 coronavirus pandemic. President Trump responded to the crisis by channeling his inner New Dealer; he handed out the most money since the New Deal directly to everyone. In 2020-2021, the United States printed 40% of all dollars in existence. Trump started the stimulus check party, and President Biden has continued the welcome handouts during his term. When assessing the impact on government balance sheets, a strange thing happened between 2008-2020 and 2020-2022.

2009 to Q2 2020 was the peak of trickle-down economics, funded by central bank money printing and euphemistically called quantitative easing (QE). As you can see, the economy (nominal GDP) grew slower than the debt accumulation at the national level. In other words, the rich spent the government windfall on assets. These types of transactions did not generate any real economic activity. Therefore, trillions of dollars of debt funding was handed out to wealthy financial asset holders, raising the debt-to-nominal GDP ratio.

Presidents Trump and Biden bucked the trend from Q2 2020 to Q1 2023. Their Treasury issued bonds, and the Fed bought them with printed dollars (QE), but instead of sending bonds to the rich, the Treasury mailed checks to everyone. The poor got real cash in their bank accounts. Apparently, JPMorgan CEO Jamie Dimon got a cut of the transaction fees on the government transfers… He’s America’s Li Ka-shing; you can’t get away from paying this old guy. The poor are poor because they spend all their money on goods and services, and that’s exactly what they did during this period. With the velocity of money well over 1, economic growth boomed. That is, $1 of debt created more than $1 of economic activity. So, magically, the ratio of US debt to nominal GDP fell.

Inflation raged because the supply of goods and services could not grow as fast as the purchasing power of the people financed by government debt. The rich who owned government bonds were not happy with these populist policies. These rich bond holders were hit with the worst total return since 1812. The rich sent their prince charming, Federal Reserve Chairman Jay Powell, to fight back. He began raising rates in early 2022 to control inflation, and while the public would have liked another round of stimulus, such a policy was prohibited. US Treasury Secretary Yellen (Bad Gurl Yellen) stepped in to undo the effects of the Fed's attempts to tighten monetary conditions. She exhausted the Fed's reverse repurchase facility (RRP) by shifting debt issuance from the long end (coupons) to the short end (bills). This provided nearly $2.5 trillion in fiscal stimulus, mainly benefiting the wealthy who held financial assets from September 2002 to the present; asset markets boomed as a result. As after 2008, these government largesse did not generate any real economic activity, and the ratio of US debt to nominal GDP began to rise again.

Has the new Trump administration learned the right lessons from recent US economic history? I believe it has.

Scott Bassett, who most people think will be Trump’s pick to replace Yellen as Treasury Secretary, has given many speeches about how to “fix” America. His speeches and columns detail how to implement Trump’s “America First” plan, which bears a strong resemblance to China’s development plan (which began with Deng Xiaoping in the 1980s and continues to this day). The plan aims to boost nominal GDP by providing government tax credits and subsidies to reshore key industries (shipbuilding, semiconductor factories, auto manufacturing, etc.). Qualifying companies will receive cheap bank financing. Banks will once again scramble to lend to real companies because their profitability is guaranteed by the U.S. government. As companies expand within the U.S., they must hire American workers. Higher-paying jobs for ordinary Americans mean more consumer spending. The impact will be magnified if Trump limits the number of sombrero-wearing, cat-eating, dark-skinned, dirty immigrants crossing the border from “shithole countries.” These measures stimulate economic activity, which the government gets funded through taxes on corporate profits and payroll income. The government deficit must remain large to finance these programs, and the Treasury funds the government by selling bonds to banks. The banks can now rebalance their balance sheets because the Fed or lawmakers have suspended the supplementary leverage ratio. The winners are ordinary workers, companies that produce “permitted” products and services, and the US government, whose debt-to-nominal GDP ratio has fallen. It’s QE on steroids for the poor.

Wow, that sounds good. Who could object to such a magical era of prosperity in the United States?

The losers are those who hold long-term bonds or savings deposits. This is because the yields on these instruments will be intentionally controlled below the nominal growth rate of the U.S. economy. People will also lose money if wages don't keep up with higher inflation levels. If you haven't noticed, joining a union is cool again. 4 and 40 is the new mantra. That is, pay workers 40% more, or 10% raises per year, for the next 4 years to stay on the job.

For those of you who think you're rich, don't worry. Here's a cheat sheet on what to buy. This is not financial advice; I'm just sharing what I do with my portfolio. Every time a bill is passed and money is released to approved industries, read it, and buy stocks in those verticals. Don't save in fiat bonds or bank deposits, buy gold (the baby boomer's financial repression hedge) or Bitcoin (the millennial's financial repression hedge).

Obviously, the hierarchy of my portfolio starts with Bitcoin, then other cryptocurrencies and crypto-related company equity, then gold stored in a vault, and finally stonks. I keep a small amount of dirty fiat in money market funds to pay my American Express bills.

I will spend the rest of this article explaining how QE for the rich and the poor affects economic growth and the money supply. I will then predict how exempting banks from the Supplementary Leverage Ratio (SLR) will once again create the ability for unlimited QE for the poor. In the final section, I will launch a new index to track the supply of bank credit in the United States and show how Bitcoin outperforms all other assets when subjected to a contraction in the supply of bank credit.

Money Supply

I have to express my deepest admiration for the quality of Zoltan Pozar's Ex Uno Plures paper. During a recent long weekend in the Maldives, I read all of his writing in between surfing, Iyengar yoga, and myofascial massage. His work will feature heavily in the rest of this article.

I will be posting a series of hypothetical accounting books. On the left side of the T are assets. On the right side of the T are liabilities. Blue entries represent increases in value and red entries represent decreases in value.

The first example focuses on how the Fed’s bond purchases through quantitative easing affect the money supply and economic growth. Of course, this example, and the rest that follow, will be a bit silly to keep it interesting and engaging.

Imagine that you are Powell during the March 2023 regional banking crisis in the United States. To blow off some steam, Powell heads to the tennis club at 370 Park Avenue in New York City to play squash with his other millionaire financial buddy. Powell’s friend is furious.

This friend, let's call him Kevin, a financier with a short temper, said, "Jay, I have to sell my house in the Hamptons. I have all my money in Signature Bank and apparently I don't qualify for federal deposit insurance because my balance is over the limit. You have to do something. You know how Bonnie gets when she has to be in town for a day in the summer. She's insufferable."

Jay responded, "Don't worry, I know what you mean. I'm going to do $2 trillion in quantitative easing. It will be announced on Sunday night. You know the Fed always has your back. Without your contributions, who knows what America would be like. Imagine if Donald Trump came back to power because Biden had to deal with the financial crisis during his presidency. I remember Trump snatching my chick at Dorsia in the early 80s, fuck that guy."

The Fed created the bank term funding program, which is different from outright quantitative easing, to address banking crises. But allow me to take some artistic liberties here. Now, let's look at what $2 trillion in quantitative easing would do to the money supply. All figures will be in billions of dollars.

1. The Fed buys $2,000 of US Treasuries from BlackRock and pays with reserves. JPMorgan Chase performs its banking duties by facilitating this swap. JPMorgan Chase receives $2,000 of reserves and places a $2,000 deposit with BlackRock. Fed quantitative easing causes banks to create deposits, which eventually become money.

2. BlackRock now loses its US Treasuries and must lend that money to others, i.e. acquire another interest-bearing asset. Larry Fink, CEO of BlackRock, does not hang out with the poor. He only works with industry leaders. But now, he’s immersing himself in the tech space. There’s a new social networking booty app that’s building a community where users share busty photos. It’s called Anaconda. Their tagline is “My anaconda wants nothing unless you have an ass, honey.” Anaconda is in the growth phase, and BlackRock happily bought $2,000 of its bonds.

3. Anaconda is a pillar of American capitalism. They conquered the market by getting the 18-45 year old male demographic addicted to their app. As they stopped reading books and started browsing the web, the productivity of this group of people has declined. Anaconda is tax-optimizing by issuing debt to finance stock buybacks so that they don’t have to repatriate foreign retained earnings. Reducing the number of shares not only increases the stock price, but also their earnings because even if their earnings don’t grow on a per-share basis, their earnings will grow due to the lower denominator. Therefore, passive index investors like Blackrock are more likely to buy their shares. The result is that the aristocrats have $2,000 in the bank after selling their shares.

4. Anaconda’s wealthy shareholders didn’t immediately use the money they received. Gagosian threw a big party at Art Basel in Miami. Despite all the screwups, the financial aristocracy decided to buy the latest canvas graffiti to promote their credentials as serious art collectors and impress the bad guys at the booth. The sellers of the art were of the same economic class as them. The net effect of sponsoring the “art” was that the seller’s bank account was debited and the buyer’s account was credited.

After all these transactions, no real economic activity was generated. The $2 trillion of printed money the Fed pumped into the economy did nothing more than increase the bank deposits of the wealthy. Even the financing of one American company did not generate any growth because the money was used to push up stock prices and created zero jobs. $1 of quantitative easing resulted in a $1 increase in the money supply, which resulted in $0 of economic activity. This is not a good use of debt. So, from 2008 to 2020, the ratio of debt of the rich to nominal GDP rose during QE.

Now, let’s look at President Trump’s decision-making process during the COVID-19 pandemic. Think back to March 2020: The pandemic had just begun, and Trump’s advisers instructed him to “flatten the curve” (remember that nonsense?). He was advised to shut down the economy and only allow “essential workers” (remember them, those poor people who made your deliveries for less than minimum wage?) to continue working.

TRUMP: “Fuck, do I need to shut down the economy just because some quack thinks the flu is real?”

Advisor: “Yes, Mr. President. I should remind you that it’s primarily fat baby boomers like you who are dying from complications from COVID-19 infection. I should also add that if people over 65 get sick and need to be hospitalized, it’s going to be expensive to treat the entire 65+ population. You need to lock down all non-essential workers.”

TRUMP: “That’ll crash the economy, let’s just give everyone checks so they won’t complain. The Fed can buy debt issued by the Treasury to fund those handouts.”

Using the same accounting framework, let’s walk through how quantitative easing helps the poor.

1. Just like the first example, the Fed conducts quantitative easing by using reserves to buy $2,000 of Treasury bonds from BlackRock.

2. Unlike the first example, the Treasury Department is involved in the flow of funds. In order to pay Trump's stimulus checks, the government must borrow money by issuing Treasury bonds. BlackRock buys Treasury bonds instead of corporate bonds. JPMorgan Chase helps BlackRock convert its bank deposits into reserves held by the Federal Reserve, which can be used to buy Treasury bonds. The Treasury Department receives deposits from the Federal Reserve in its Treasury General Account (TGA), which is similar to a checking account.

3. The Treasury Department sends stimulus packages to everyone, mainly to the general public. This causes the TGA balance to shrink, and the reserves held by the Fed to increase accordingly, which become the common man's deposits at JPMorgan Chase Bank.

4. Common men being common men, they spend all their stimulus on new Ford F-150 pickup trucks. Screw electric cars, this is America, so they're all spending all that black gold. Common men's bank accounts are debited, and Ford's bank accounts are credited.

5. Ford does two things when it sells these trucks. First, they pay their workers, and bank deposits are transferred from Ford's accounts to the common worker's accounts. Ford then goes to the bank to take out a loan to increase production; as you can see, the making of the loan creates its own deposits from Ford, the recipient, and increases the money supply. Finally, the common worker wants to go on vacation, and takes out a personal loan from the bank, which the bank is happy to provide given the strong economy and high-paying jobs. The common bank loan creates additional deposits, just as Ford borrowed money.

6. The ending balance of deposits or funds is $3,000. This is $1,000 more than the $2,000 that the Fed initially injected through QE.

From this example, you can see that QE for the poor stimulates economic growth. The Treasury Department issued stimulus to encourage civilians to buy trucks. Because of the demand for goods, Ford was able to pay employees and apply for loans to increase production. Employees in high-paying jobs qualified for bank credit, allowing them to consume more. $1 of debt generated more than $1 of economic activity. This is a good result for the government.

I want to go a step further and discuss how the banks provide unlimited financing to the Treasury Department.

We will start with step 3 above.

4. The Treasury is issuing a new round of stimulus. To raise money, the Treasury auctions bonds, and JPMorgan, as a primary dealer, buys these bonds with reserves held at the Fed. The sale of bonds increases the Treasury's TGA balance at the Fed.

5. As in the previous example, the Treasury sends checks that look like deposits made by private citizens at JPMorgan.

When the Treasury issues bonds that the banking system buys, it converts reserves held by the Fed that do nothing productive for the economy into deposits held by private citizens that can be used to buy things and generate economic activity.

Another T-chart. What happens when the government implements industrial policy by promising tax breaks and subsidies to companies that produce needed goods and services?

In this example, Pax Americana is running out of bullets for their Clint Eastwood Western-inspired shootout in the Persian Gulf. The government passes a bill promising to subsidize bullet production. Smith & Wesson applies for and is awarded a contract to supply ammunition to the military. Smith & Wesson can’t produce enough bullets to fulfill the contract, so they ask JPMorgan Chase for a loan to build a new factory.

1. JPMorgan Chase’s loan officer receives the government contract and confidently loans Smith & Wesson $1,000. The act of lending creates $1,000 out of thin air.

2. Smith & Wesson built factories and created wages for the common people, which eventually became deposits at JPMorgan Chase. The money created by JPMorgan Chase became deposits of those most inclined to spend, the common people. I have already talked about how the spending habits of the common people create economic activity. Let's change the example a little.

3. The Treasury needs to subsidize Smith & Wesson by issuing $1,000 of new bonds at auction. JPMorgan Chase attends the auction to buy the bonds, but does not have any reserves to buy the bonds. Since there is no longer any taint in using the Fed's discount window, JPMorgan Chase pledges its Smith & Wesson bond assets as collateral for a loan from the Fed's reserves. These reserves are used to buy newly issued Treasury bonds. The Treasury then pays Smith & Wesson a subsidy, which becomes a deposit at JPMorgan Chase.

This example shows how the U.S. government can use industrial policy to induce JPMorgan Chase to make loans and use the assets created by the loans as collateral to buy additional U.S. Treasury bonds from the Fed.

Constraints

It seems that the Treasury, the Fed, and the banks operate a magical money-making machine that can do one or more of the following:

1. They can pump financial assets into the pockets of the rich without generating any real economic activity.

2. They can fill the bank accounts of the poor, who often use their relief money to buy goods and services, generating real economic activity.

3. They can guarantee profitability for specific players in specific industries. This allows businesses to expand using bank credit, generating real economic activity.

Are there any limits?

Yes, banks cannot create unlimited amounts of money because they must set aside expensive equity for each debt asset they hold. In technical terms, different types of assets have risk-weighted asset charges. Even so-called "risk-free" government bonds and central bank reserves incur equity capital charges. This is why, at a certain point, banks cannot meaningfully participate in bidding on U.S. Treasuries or issuing corporate loans.

There is a reason equity capital must be used to finance mortgages and other types of debt securities. If the borrower goes bankrupt, whether it is a government or a corporation, someone needs to bear the losses. Given that banks decide to create money to lend or buy government bonds for a profit, it is only fair that their shareholders bear the losses. When the losses exceed the bank's equity capital, the bank fails. When a bank fails, depositors lose their money, which is bad. However, from a systemic perspective, what is even worse is that the bank cannot continue to increase the amount of credit in the economy. Given that parts of the fiat financial system require a steady flow of credit to survive, a bank failure could bring down the entire house of cards. Remember - one player's asset is another player's liability.

When bank equity credit runs out, the only way to save the system is for the central bank to create new fiat money and exchange it for the bank's negative assets. Imagine Signature Bank lending only to Su Zhu and Kyle Davies of the now-defunct Three Arrows Capital (3AC). Su and Kyle gave the bank a false balance sheet that misrepresented the health of the company. They then took cash out of the fund and gave it to their wives in the hope that it would save it from bankruptcy, and when the fund went bankrupt, the bank had nothing to seize and the loan was worth zero. This is fiction; Su and Kyle are good people. They would never do anything like what I describe ;). Signature made a large campaign contribution to Elizabeth Warren, a member of the U.S. Senate Banking Committee. Using their political influence, Signature convinced Senator Warren that they were worth saving. Senator Warren called Powell and told him that the Fed had to exchange dollars for 3AC debt at par through the discount window. The Fed did as asked, Signature was able to exchange the 3AC bonds for new dollar bills, and the bank was able to absorb any deposit outflows. Again, this didn’t really happen; it was just an example of “silliness.” But the moral of the story is that if the banks don’t put up enough equity themselves, then the entire population ends up paying for it due to currency devaluation.

Perhaps my hypothetical example has some truth to it; here’s a recent story in The Straits Times:

The wife of Zhu Su, co-founder of failed cryptocurrency hedge fund Three Arrows Capital (3AC), has managed to sell a mansion she owned in Singapore for $51 million, despite having some of the couple’s other assets frozen by the court.

Back to reality.

Suppose the government wanted to create unlimited bank credit. In that case, they would have to change the rules to exempt government bonds and certain types of “permitted” corporate debt (which could be either by type, such as investment-grade bonds, or by industry, such as debt issued by semiconductor companies) from the so-called supplementary leverage ratio (SLR).

If US Treasuries, central bank reserves, and/or approved corporate debt securities were exempt from the SLR, banks could buy unlimited amounts of debt without taking on any expensive equity burden. The Fed has the power to grant exemptions. They did just that from April 2020 to March 2021. If you remember, US credit markets were at a standstill at the time. The Fed needed to get banks to lend to the US government again by participating in Treasury auctions because the government was about to launch a stimulus package worth trillions of dollars with no tax revenue to pay for it. The exemptions worked very well. This led to banks buying a lot of US Treasuries. The downside was that after Powell raised rates from 0% to 5%, the same US Treasuries fell sharply in price and triggered the regional banking crisis in March 2023. There is no such thing as a free lunch.

Bank reserve levels also limit the willingness of the banking industry to buy US Treasuries at auction. Banks will stop participating in auctions when they feel their reserves at the Fed have reached their Minimum Comfortable Level of Reserves (LCLoR). You don’t know what the LCLoR is until after the fact.

This is a chart from the Treasury Borrowing Advisory Committee (TBAC) presentation “Financial Resilience of Treasury Markets”, published on October 29, 2024. The chart shows that the banking system holds a smaller and smaller percentage of total outstanding Treasuries, and is therefore approaching the LCLoR. This is a problem because as the Fed sells (QT) and surplus country central banks sell (or stop investing) their net export earnings (de-dollarize), the marginal buyers in the Treasury market become volatile bond trading hedge funds.

Here is another chart from the same presentation. As you can see, hedge funds are picking up the slack. But hedge funds are not real money buyers. They are doing a carry trade, buying cheap spot Treasuries and shorting Treasury futures contracts. The cash portion of the trade is financed by the repo market. Repo is the exchange of assets (Treasuries) for cash at a certain interest rate over a certain period of time. The repo market prices overnight funding using Treasuries as collateral based on the amount of commercial bank balance sheets available. As balance sheet capacity decreases, the repo rate rises. If the cost of funding Treasuries rises, hedge funds can only buy more Treasuries when the price falls relative to the futures price. This ultimately means that the prices of Treasury bonds at auction must fall and yields rise. This is not what the Treasury wants to happen, as it needs to issue more debt at increasingly cheaper prices.

Due to regulatory restrictions, banks cannot buy enough Treasuries and cannot finance hedge funds to buy them at affordable prices. This is why the Fed had to exempt banks from the SLR again. It increases liquidity in the Treasury market and allows for unlimited QE that can be targeted at the productive parts of the US economy.

If you’re not sure that the Treasury and the Fed have understood the need for bank deregulation, TBAC spells out exactly what needs to be done on slide 29 of the same presentation:

Tracking the Numbers

If Trumponomics works as I just described, then we have to focus on the amount of bank credit growth we expect to see.Based on the above examples, we know that QE for the rich works by increasing bank reserves, while QE for the poor works by increasing bank deposits. Thankfully, the Fed provides two data points on the entire banking system every week. I created a custom Bloomie index that is a combination of reserves and other deposits and liabilities, the <BANKUS U Index>. This is my custom index that tracks the amount of bank credit in the US. In my opinion, this is the most important money supply indicator. As you can see, sometimes it leads Bitcoin, like in 2020, and sometimes it lags, like in 2024.

What’s more important, however, is how an asset performs when it is subject to a contraction in the supply of bank credit. Bitcoin (white), the S&P 500 (gold), and gold (green) have all been divided by my bank credit index. These values ​​are indexed at 100, and as you can see, Bitcoin has stood out, up over 400% since 2020. If you can do only one thing to combat the debasement of fiat currencies, make it Bitcoin. You can’t argue with math.

The Way Forward

Trump and his monetary lieutenants have made it very clear that they will pursue policies that weaken the dollar and provide the necessary funding for the reshoring of American industry. Given that Republicans will control all three branches of government for the next two years, they can pass Trump's entire economic plan without any effective opposition from the Democrats. Mind you, I believe the Democrats will join the party of money printing, because what politician can resist giving free stuff to voters?

The Republicans will first pass bills to encourage manufacturers of key goods and materials to expand domestic production. These bills will be similar to the CHIPS Act, the Infrastructure Act, and the Green New Deal passed by the Biden administration. As companies accept these government subsidies and take out loans, bank credit growth will surge. For those who fancy themselves as stock pickers, buy shares of public companies that make the things the government wants to make.

At some point, the Fed will admit defeat and at least exempt US Treasuries and central bank reserves from the SLR burden. At that point, the path to unlimited quantitative easing will be clear.

The combination of legislative industrial policy and SLR exemptions will lead to a massive influx of bank credit. I have shown that the velocity of money from such a policy is much higher than traditional quantitative easing for the wealthy supervised by the Fed. Therefore, we can expect Bitcoin and cryptocurrencies to perform as well as, or better than, they did from March 2020 to November 2021. The real question is, how much credit will be created?

The COVID stimulus injected about $4 trillion in credit. This episode will be much worse. Defense and health care spending alone are growing faster than nominal GDP. They will continue to grow rapidly as the United States increases defense spending in response to the shift to a multipolar geopolitical environment. The share of the U.S. population over the age of 65 will peak in 2030, which means that health care spending growth will accelerate between now and then. No politician can cut defense spending and health care because they will quickly be voted out of office. All this means that the Treasury will be busy pumping tons of debt into the market quarter after quarter to keep the lights on. I have previously shown how quantitative easing combined with Treasury borrowing can make the velocity of money greater than 1. This deficit spending will increase the nominal growth potential of the United States.

Speaking of relocating American businesses back home, the cost of achieving that goal will also be in the trillions of dollars. The United States voluntarily handed over its manufacturing base to China when it allowed China into the World Trade Organization in 2001. In less than three decades, China has become the world's factory, producing the highest quality products at the lowest prices. Even companies that want to move their supply chains away from China to so-called cheaper countries realize that the integration of so many suppliers along China's eastern coast is so deep and so efficient that even though hourly wages are much lower in Vietnam, these companies still need to import intermediate parts from China to produce finished goods. In summary, reorienting supply chains to the United States will be a huge undertaking, and if it must be done for political expediency, it will be very costly. I'm talking about high single-digit to low double-digit cheap bank financing that must be available to move production capacity from China to the United States. It took $4 trillion to reduce the debt-to-nominal GDP ratio from 132% to 115%. Suppose the US further reduces it to 70%, the level in September 2008. Using linear extrapolation alone, it is equivalent to having to create $10.5 trillion of credit to achieve this deleveraging. This is why Bitcoin reached $1 million, because the price is set at the margin. As the freely traded supply of Bitcoin decreases, the most fiat currency in history will be chased for safe haven not only from Americans, but also from the Chinese, Japanese, and Western Europeans. Invest more, keep more.

If you doubt my analysis of the impact of quantitative easing on the poor, just read the economic history of China over the past thirty years and you will understand why I call the new economic system under the US "American capitalism with Chinese characteristics."