Original Compilation: angelilu, Foresight News
On September 23, Arthur Hayes attended the KBW 2025 Summit in Korea and delivered a keynote speech. His presentation outlined the potential phenomenon of “runaway money printing” in the United States, analyzing its historical roots, political drivers, and possible mechanisms for realization. He also discussed why, as cryptocurrency investors, we should care about these developments.
Arthur Hayes emphasized an analogy between Bitcoin’s price surge during the pandemic and the scale of credit expansion over the same period. By 2028, the price of one Bitcoin could reach approximately $3.4 million. While this figure may seem absurd, the era of Bitcoin’s “million-dollar” valuation is approaching. Below is the full text of Arthur Hayes’ speech:
Alright, this will get a bit technical, touching on who votes for what and similar matters. However, I believe it is crucial to understand where we currently stand on America’s path toward runaway money printing. This journey essentially began with Donald Trump’s election and his appointment of a Treasury Secretary, whom I call “Wild Bill.” But they haven’t fully taken their positions yet. They are sending all the right signals, and mainstream financial media is already discussing how terrible Trump is, such as his daily criticism of Jerome Powell as “Mr. Too Late” on Truth Social.
At the end of the day, the Federal Reserve has reduced permanent interest rates, which is not bad, but they could have done more. How do we get to the point of madness? How do we make Bitcoin rise to a million or more, ensuring that any “altcoin” in your portfolio increases 100-fold without leaders, revenue, or customers? I know that’s what you want to hear from me.
How do we get there? It starts with understanding how the Federal Reserve votes, which committee is responsible for what, and how we move towards an outcome that ultimately leads to yield curve control. That’s why this article, released after my presentation, and the accompanying speech, will discuss these topics. So, to understand where we’re heading, let’s revisit history because history can foreshadow the future.
Going back to the 1940s, what happened then? There was a world war. The U.S. became involved in 1942. Obviously, when you enter a war, what do you do? You print a lot of money. How? You instruct the central bank to lower the cost of capital and increase its availability so that the central government can crowd out everyone else and borrow to finance tools of destruction. So, how did the U.S. government finance its involvement in World War II?
Essentially, the Federal Reserve reached an agreement with the Treasury Department to manipulate the bond market, enabling the U.S. government to issue debt at extremely low costs. This is a photo of the Tuskegee Airmen. They were preparing to go to war and buy war bonds. What were the interest rates on Treasury bonds at the time? For nearly a decade, the interest rate on Treasury bills with maturities of less than one year was capped at 0.375%. For longer-term Treasury bonds, the interest rate on 10- to 25-year bonds was limited to 2.5%. This was the U.S. approach to yield curve control.
Here is a chart of the yield curve. The orange line represents roughly where we are today, which I plotted over the weekend. As you can see, the interest rate on Treasury bills for 1 to 3 months is about 4%, the 10-year Treasury bond is around 4.5%, and the 30-year Treasury bond is approximately 4.75%. This is our current yield curve, which contrasts with the yield curve from the late 1940s during World War II.
From Trump’s perspective, this is what he aims to create. He wants to transform the orange line into the purple line. As investors, we must answer how this could be achieved, and we need to make some bold assumptions and speculations. I may have to delve into the realm of bureaucratic politics, which is obviously very chaotic because we are dealing with people, and people are unpredictable—they often do things we don’t expect.
So, I will outline a possible path, but I don’t know if it will actually happen. However, based on my current thinking regarding the portfolio of Maelstrom (the investment firm I manage), this possibility is sufficiently high for me to feel confident in pushing risk levels almost to the maximum, even though Bitcoin has risen from around $3,000 to $12,000 and is now experiencing a period of weakness.
So, what is the mechanism of yield curve control? As you know, Steven Moran, a member of the Federal Reserve Board, proclaimed the Fed’s third mandate, which is actually written into the 1913 Federal Reserve Act: the Federal Reserve has the responsibility to “maintain moderate interest rates on government bonds.” What exactly does “moderate” mean? It means whatever they want it to mean. So when I say the Fed’s third mandate is to print money to help finance our national debt as effectively as possible, this is what I’m referring to.
Now, why is financing large-scale fiscal spending and credit creation so critical for the U.S. right now? The reasons remain the same as always. The U.S. is at war, or more importantly, the U.S. has essentially lost the last two wars. They lost the war against Russia in Ukraine and were forced to halt their intervention in Iran within 12 days because they ran out of missiles meant to assist Israel in self-defense.
It turns out that America’s industrial base is completely gone. Over the past four decades, it has been transferred to China. Now, the U.S. cannot produce enough artillery shells to defeat Russia, nor can it manufacture sufficient missiles to help allies bomb wherever they wish. And this is precisely what Trump truly wants to correct—or at least attempt to fix as quickly as possible. This requires credit, and this credit will come from the banking system and the U.S. Treasury.
So, specifically, how can the Treasury bill market be controlled? You can lower the interest rate on excess reserves. Excess reserves are the reserves banks hold at the Federal Reserve, and currently, these reserves earn interest at the lower end of the federal funds rate. They can also reduce the discount rate. When banks face difficulties, such as during the regional banking crisis in 2023, they borrow from the Fed’s discount window at a specific rate. If I can lower these two rates to any level I desire, I can effectively cap the yields on Treasury bills.
A key committee I will discuss later is the Federal Reserve Board of Governors. They are responsible for controlling the short end of the curve, namely the interest rate on excess reserves, and influencing the rate at which banks borrow from the regional Fed’s discount window. So, how does one manipulate the long end of the Treasury market?
The first thing we need to focus on is the System Open Market Account (SOMA). When the Fed conducts quantitative easing (QE) by creating reserves and purchasing bonds from banks, these bonds ultimately end up in the SOMA account. They publish the balance of this account weekly. This is the metric we can use to monitor whether they are truly engaging in yield curve control – whether they are purchasing bonds in unlimited quantities at a specific price to manipulate yields to a particular level.
If you study how Japan’s yield curve control works, you’ll find that the Bank of Japan sets a target rate and then keeps buying bonds until the rate reaches that level. As a result, if you want to profit, you sell me the bonds, driving down interest rates, pushing up bond prices, expanding the balance sheet, increasing credit demand in the system, and naturally causing cryptocurrencies to rise. The key Federal Reserve committee responsible for this expanded balance sheet is the Federal Open Market Committee (FOMC), which we will explain in detail later.
The second point concerns the generation of credit growth. I wrote an article titled ‘Black and White’ about nine to twelve months ago. In that article, I delved deeply into the differences between credit creation at the central bank level and credit creation at the commercial bank level.
Since the 2008 global financial crisis, we have been in an era where credit generation has been dominated globally by central banks. When central banks are responsible for issuing credit, what activities do they fund? Central banks favor large corporations and financial engineering. So, if you’re a private equity investor in London, New York, Hong Kong, or Beijing, you would leverage substantial debt to acquire a company, take out operating profits as dividends, and then resell it at a higher EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) multiple to make money. You’re not creating new capacity; you’re simply leveraging existing capacity.
This is why there isn’t much industry left in the United States because since the 1980s, you’ve been doing leveraged buyouts. You acquire companies, load them with debt, because you can tap into the large corporate bond market, and big companies are able to issue currency outside the banking system. Because the Federal Reserve injects so much liquidity, all wealthy individuals want to purchase these institutional risk-free assets. This is why MicroStrategy succeeded. He was able to issue debt into these markets. So, we issue cheap debt, and then we buy Bitcoin. That’s essentially why MicroStrategy became a major player.
Now, could this approach help President Trump manufacture more bombs? No. They need more capacity in the U.S. industrial sector. They need small and medium-sized enterprises (SMEs) to access credit, hire workers to make batteries, produce goods. They need bank loans. When the Fed continuously ‘turns the crank’ (prints money), crowding out space, smaller banks and regional banks cannot function. They need a steep yield curve. They need to be able to lend to these industries and make money from it. There was a great article in The Wall Street Journal recently referring to the Fed’s policy as ‘gain of function,’ criticizing its role in destroying American industry and exacerbating inequality in the U.S. He is 100% correct, but he’s also a hypocrite because he’ll go make money too.
So this economy is fascinating. But his point is that he will empower regional banks to lend. And regional banks need a steep yield curve. Thus, what Trump wants to see is a ‘bull steepening’ of the yield curve, meaning a general decline in interest rates and a steepening of the curve, where banks borrow deposits at low rates on the short end and lend at high rates on the long end, based on spreads derived from 10- or 30-year Treasury rates.
If you look at the current situation, in the 1940s, this spread was close to 2%, highly profitable for banks. Now, it’s only 20 basis points. A few years ago, it was even negative. So, by stifling small banks, you essentially kill the nation’s credit production and industrial output. Therefore, Trump not only wants to steepen the yield curve, but he also aims to remove all those ‘bad’ regulations that hinder small banks from extending credit to SMEs. By making banks more profitable, they will engage in what the government wants them to do.
Now we must understand two committees because Trump has his objectives. He is the “ambassador” of the Treasury, and he will tell you exactly what they want to achieve. So how will they transform these two independent entities—the Treasury and the Federal Reserve—into a cooperative body that works together to achieve those goals?
First, we are talking about the Federal Reserve Board of Governors. It consists of seven members, all nominated by the President and confirmed by the Senate—a crucial point. Trump currently controls the Senate, and we will see if he can maintain control after the midterm elections in November 2026. However, if recent events are any indication, getting his nominees approved has been extremely difficult. Steven Mnuchin, recently appointed by Trump to the Federal Reserve Board, was narrowly confirmed by just one vote last week. The situation is very tense. If Trump cannot get his nominations approved within approximately the next 12 months, he will lose this opportunity because opposition Democrats will not approve his candidates for the Fed Board. Therefore, he needs more votes. This board controls the interest rate on excess reserves and influences the discount rate at which banks borrow from the Fed’s 12 regional banks. Most importantly, regional Fed presidents are approved by a simple majority vote of the Federal Reserve Board. Thus, the first step is for Trump to secure four votes on this board to control the short end of the yield curve and place more allies on the Federal Open Market Committee (FOMC) so that they can eventually control the balance sheet.
The FOMC has 12 members, seven of whom are members of the Board of Governors, and five are rotating regional Fed presidents. The president of the New York Fed holds a permanent seat due to their significant influence over the U.S. financial ecosystem. What does the FOMC do? We know that it is responsible for setting the federal funds rate, meeting monthly or nearly monthly, and managing the System Open Market Account (SOMA). They decide the scale of quantitative easing, the pace of bond purchases, and which bonds to buy—all of which are extremely important.
So, how could Trump gain control of the Federal Reserve Board? You need to roll the dice and get ‘snake eyes’ and ‘loaded dice.’ Here is a very interesting chart. Essentially, we are looking at a scenario where Trump has two senators, Bowman and Waller, who we know want to be on the Federal Reserve Board. They were dissenters at the July meeting, advocating for rate cuts, while Jerome Powell and the majority wanted to keep rates unchanged. They have openly expressed loyalty to Trump.
Cook was the most recent person to leave the Federal Reserve. She abruptly resigned in August. Rumors suggest her husband engaged in unethical insider trading during a Fed meeting, and she chose to resign to avoid being forced out by an angry Trump. That’s how Steven Mnuchin got in. Now Trump has three out of seven votes. The fourth would be Lisa Cook. If you’ve been following the news, she is a member recently appointed by Biden. There are allegations that she participated in mortgage fraud, falsely reporting her primary residence to obtain a lower mortgage rate. Her case has been referred to the Department of Justice and may lead to a criminal investigation. For now, she remains defiant and refuses to leave or resign. However, I believe by the end of the year, she will receive some form of political assurance to step down. With that, Trump would have four votes and control of the board.
The first thing they would want to do is accelerate the decline in short-term interest rates. An interesting arbitrage mechanism could force the FOMC—even before Trump fully controls it—to lower rates faster than expected. If the board reduces the interest rate on excess reserves and the discount window rate, a flood of liquidity will enter the federal funds market. This opens up an arbitrage opportunity for large commercial banks. What will they do? Banks will pledge assets at the discount window, borrowing funds at a rate below the federal funds rate, and then lend them out at around 4%, creating a great arbitrage opportunity for parking cash. This arbitrage essentially takes advantage of the Federal Reserve, forcing it to print money and hand it over to the banks—an absurdity—and this is why it inherently pressures the FOMC to cut rates.
I saw a recent interview with Steven Mnuchin, probably yesterday or this morning on Bloomberg. He said that monetary policy at the Fed was too tight by 2%. This basically gives you an idea of where they want to go. They want the federal funds rate to drop to around 2%, and they want it done yesterday. In fact, if Trump can get Lisa Cook out, he could execute this arbitrage by the end of the year and potentially bring the federal funds rate below 2% very quickly.
As I mentioned, all members of the Federal Reserve Board are permanent voting members of the FOMC. The Board also approves regional Fed presidents to become rotating voting members of the FOMC. I believe that apart from the New York Fed, the Philadelphia, Cleveland, and Minneapolis Feds will be the other four regional Fed presidents with voting rights in 2026. Meanwhile, all 12 regional Fed presidents will face a ‘re-election’ in February next year.
How did this happen? Each regional bank of the Federal Reserve (there are 12 in total) has its own board of directors. This arrangement dates back to when each region of the continental United States had different interest rate needs based on agricultural tax revenues. Each regional Fed’s board consists of three types of members. Among them, six B-class and C-class board members jointly elect the president of their respective banks. So, who are these board members of the regional Feds? Here is a list, and all this information will be published online later. You will notice that the chairmen of these Fed banks are either bankers or industrialists. What do bankers and industrialists always want? They want cheap money. They want abundant money. Therefore, how could these people oppose Trump’s policies of lowering interest rates and increasing the money supply? It would increase their wealth. Since we are all self-interested, I think they are likely to vote for those who follow Trump’s wishes—namely, candidates favoring looser monetary policies. If they don’t, the council controlled by Trump will essentially hint that if you do not vote for a dovish chairman, we will not approve him.
So now Trump has seven votes, and he will gain control of the FOMC at some point in the first half of 2026. Then, once they have a majority in the FOMC, what can they do? They can return to quantitative easing. They can stop participating…
We are currently in a period of quantitative easing because the Treasury Department has a large amount of debt to issue. Right now, the Treasury dares not issue long-term debt. They are afraid, just as during the Great Depression, of long-term debt. So currently, only short-term debt is being issued, which is why clever moves to avoid excessive regulation are so important, as they need price-inelastic buyers who can purchase these government bonds or Treasury bills at any time. But if they control the FOMC, and the FOMC agrees that yield curve control is necessary to achieve the political and industrial objectives of the Trump administration, they will invest trillions of dollars in debt. The Federal Reserve will purchase most of these bonds because the FOMC members have already restarted quantitative easing.
Thus, through this control over the Board and the FOMC, along with the progression of the timeline, Trump can essentially recreate the yield curve I presented, ranging from 1942 to 1951.
I certainly have a question here, as there is a lot of math related to the money market involved. I know this is somewhat like a map of the money market; let’s look at Japan’s situation. But, folks, this is exactly what we’re here for. So, with the upcoming implementation of yield curve control in the U.S., how high can the price of Bitcoin go? This number, you know, is obviously absurd—$3.4 million. Am I standing before you today believing we will reach $3.4 million per Bitcoin by 2028? I would probably say no. But I am interested in the direction it is heading and the potential scale it may reach. So, I hope we reach one million, others hope so too, which is great, but I am very skeptical about it.
This is not just based on adaptively scaled figures in terms of thought dimensions, but on the amount of government debt that will be issued. What will the situation look like when Trump and his team leave office at the end of 2028? I checked my Bloomberg terminal, studying how much government debt will mature in order for these individuals to lower interest rates. Then, I added the projected $2 trillion federal deficit from now until 2028. This is approximately the Congressional Budget Office’s estimate for fiscal deficits. This gives us a figure: $15.3 trillion in new government debt must be issued within the next three years.
During the pandemic, how much did the Federal Reserve purchase? The Fed purchased approximately 40% to 45% of the government bond issuance. I believe this percentage will be higher during this period because foreigners are less likely to purchase U.S. Treasuries than before, especially considering Trump’s actions. He tends to devalue the dollar to add debt for America’s reindustrialization, which makes others uneasy. So, why would I do this? I don’t know, I wouldn’t. Thus, effectively, we are looking at $7.5 trillion in credit creation. That is the amount by which our balance sheet will grow between now and 2028.
The second part concerns ‘fictitious’ credit creation. How many loans will be extended to small and medium-sized enterprises across the United States? This is a difficult figure to predict. So, I said, alright, let’s look at what happened during the COVID-19 pandemic. That was the last time this policy was successfully implemented, essentially from February 2020 to the peak at the end of 2021. If you examine the Federal Reserve’s weekly statistics on the balance sheets of the U.S. banking system, it provides a good measure of credit and loan growth. I estimate that we saw an increase of $3 trillion over those years. Therefore, with three years multiplied by three, we arrive at approximately $15.2 trillion in credit creation.
Alright, what does this mean for the rise in Bitcoin prices? Returning once again to the experience of the pandemic, I used a very rough slope to gauge the relationship between the percentage increase in Bitcoin price and each dollar of credit created under this framework. The slope is 0.19. You multiply this slope by $15.2 trillion in credit growth and then apply it to Bitcoin’s baseline price of $115,000. This is how we arrived at the conclusion that Bitcoin’s price could reach approximately $3.4 million by 2028. I am almost 100% certain this will not happen. However, I believe this is the intellectual framework for understanding the flow of credit creation from the Federal Reserve to the Treasury, and then through the banking system to fund the reindustrialization of the United States. We know what happened when this policy was pursued for just one year during the pandemic. What if it lasts for three years? When the Federal Reserve and the Treasury work in tandem, printing money and, in their words, propelling the U.S. economy into ‘Valhalla’ (the mythical hall of heroes), we may see Bitcoin prices exceed $1 million.
This is why I am very confident that the four-year cycle does not apply in this particular cycle. We are in the midst of a ‘military-religious’ realignment, and if they manage to take control of all monetary policy leadership and are highly motivated, as they claim, this is what is likely to occur. Thank you all.
