Arthur Hayes' Full Speech in South Korea: War, Debt, and Bitcoin, Opportunities Amidst the Money Printing Frenzy

Original Author | Arthur Hayes
Original Translator | angelilu, Foresight News

On September 23, Arthur Hayes attended the KBW 2025 Summit in South Korea and delivered a keynote speech. His keynote outlined the potential future phenomenon of "crazy money printing" in the United States, analyzing its historical roots, political drivers, and the specific mechanisms that could bring it about. He also mentioned why we, as crypto investors, should care about these issues. Below is the full text of Arthur Hayes' speech:

Opening and Background: Moving Towards Crazy Money Printing

Well, this is going to get a bit technical, talking about who votes for what and such. But I think it’s crucial to understand where we currently stand on the path towards the U.S. ultimately heading towards crazy money printing. This actually started with Donald Trump's election and the appointment of a Treasury Secretary, whom I call "Wild Bill." But they haven't really settled in yet. They are sending all the right signals, and mainstream financial media is talking about how terrible Trump is, like how he berates Jerome Powell on social media (Truth Social) every day, calling him "Mr. Too Late."

But at the end of the day, the Federal Reserve has permanently reduced interest rates, which is nice, but they could have done more. How can we get to crazy? How can we get Bitcoin to a million or more, and have any "altcoin" in our portfolios rise 100 times without leadership, revenue, or customers? I know this is 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 the eventual outcome of yield curve control. That’s why the article I published after stepping down and the subsequent speech will discuss these matters. So, to understand where we are going, let’s go back to history, because history can predict the future.

Historical Review: War Financing in the 1940s

Back to the 1940s, what was happening? There was a world war. The U.S. got involved in 1942. Obviously, when you get involved in a war, what do you do? You print a lot of money. How do you do that? You tell the central bank to lower the price of money and increase its quantity, so the central government can crowd out everyone else and borrow money to make killing machines. So how did the U.S. government finance its involvement in World War II?

The Federal Reserve essentially reached an agreement with the Treasury to manipulate the bond market, allowing the U.S. government to issue debt at extremely low costs. Here’s a photo of the Tuskegee pilots. They were preparing to go to war and buy war bonds. What were the interest rates on government bonds at that time? For nearly a decade, the yield on Treasury bills with maturities of less than one year was capped at 0.675%. For long-term Treasury bonds, the yield on 10 to 25-year bonds was capped at 2.5%. This is the yield curve control of the United States.

Yield Curve Comparison and Future Speculation

Here’s a chart of the yield curve. The orange line represents our approximate situation today, which is a chart I made over the weekend. As you can see, the yield on 1 to 3-month Treasury bills is about 4%, the 10-year Treasury yield is about 4.5%, and the 30-year Treasury yield is about 4.75%. This is our current yield curve, compared to the yield curve at the end of the 1940s during World War II.

In Trump's view, this is what he wants to create. He wants to turn the orange line into the purple line. As investors, we must answer how to achieve this goal, and we must make some bold assumptions and guesses. 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 strange; they do unexpected things.

So, I will outline a possible path, but I don’t know if it will really happen. However, based on how I currently think about the Maelstrom (the investment firm he manages) portfolio, the possibility is high enough for me to confidently push the risk level to nearly the maximum, even though Bitcoin has risen from about $3,000 to $12,000 and is now experiencing a soft period.

Mechanisms of Yield Curve Control and the Fed's Third Mandate

So, what is the mechanism of yield curve control? As you know, Federal Reserve Board member Steven Moran has claimed the Fed's third mandate, which is actually written in the Federal Reserve Act of 1913: the Fed is responsible for "maintaining moderate interest rates on government bonds." What does "moderate" really mean? It means whatever they want it to mean. So when I say the Fed's third mandate is to print money to help us best finance national debt, that’s what I mean.

Now, why is it so critical for the U.S. to finance massive fiscal spending and credit generation? The reason is the same as always. The U.S. is at war, or more importantly, the U.S. has essentially lost its last two wars. They lost the war against Russia in Ukraine and were forced to stop intervening in Iran after 12 days because they ran out of missiles to help Israel defend itself.

It turns out that the U.S. industrial base is completely gone. Over the past forty years, it has been transferred to China. Now, the U.S. cannot produce enough ammunition to defeat Russia, nor can it produce enough missiles to help allies bomb where they want to bomb. And this is what Trump really wants to correct, or at least try to do as quickly as possible. This requires credit. And this credit will be provided by the banking system and the U.S. Treasury.

Control of Short-Term and Long-Term Interest Rates

So, specifically, how do you control the Treasury bill market? You can lower the interest rate on excess reserves. Excess reserves are the reserves banks hold at the Federal Reserve, and currently, the interest rate on these reserves is at the low end of the federal funds rate. They can also lower the discount rate. When banks are in trouble, like during the regional banking crisis of 2023, banks borrow from the Fed at a rate from the discount window. If I can lower these two rates to any level I want, I can effectively limit the yield on Treasury bills.

One key committee I will discuss later is the Federal Reserve Board of Governors. They are responsible for controlling the short end of the curve, which is the interest rate on excess reserves, and influencing the rate at which banks borrow from the discount window of the regional Fed. So how do we manipulate the long end of the Treasury bond market?

What we first need to focus on is the System Open Market Account (SOMA). When the Fed conducts quantitative easing (QE) by creating reserves and buying bonds from banks, these bonds eventually go into the SOMA account. They publish the balance of this account weekly. This is the indicator we can use to monitor whether they are really conducting yield curve control—whether they are buying bonds at a specific price in unlimited quantities to manipulate yields to a specific level.

The Shift in Credit Generation: From Central Banks to Commercial Banks

If you study how Japan's yield curve control works, you will find that the Bank of Japan sets a target interest rate and then continuously buys bonds until the rate reaches that level. This way, if you want to profit, you will sell bonds to me until the rate drops, bond prices rise, the balance sheet expands, and credit demand in the system expands, then cryptocurrencies will naturally rise. The key Federal Reserve committee responsible for this expanding balance sheet is the Federal Open Market Committee (FOMC), which we will explain in detail later.

The second thing is the generation of credit growth. I wrote an article titled "Black and White" about nine to twelve months ago. In that article, I explored the difference between credit generated at the central bank level and credit generated at the commercial bank level.

Since the 2008 global financial crisis, we have been in an era of credit generation dominated by central banks globally. When central banks are responsible for issuing credit, what kind of activities do we notice they are funding? Central banks favor large corporations; they favor financial engineering. So if you are a private equity investor in London, New York, Hong Kong, or Beijing, you will use a lot of debt to acquire a company, take the operating profit dividends, and then sell it again at a higher EBITDA multiple, you make money. You are not creating new capacity; you are just leveraging existing capacity.

This is why the U.S. has less industry, because since the 1980s, you have been doing leveraged buyouts. You acquire companies, take on massive debt because you can enter the large corporate bond market, and large corporations can issue currency outside the banking system. Because the Fed has paid a lot of money, all the wealthy want to buy this institutional risk-free capital. This is why MicroStrategy has been successful. They can issue debt to these markets. So we issue cheap debt and then buy Bitcoin. This is basically why MicroStrategy became a large company.

Now, can this method help President Trump create more bombs? No. They need the U.S. industrial sector to have more capacity. They need small and medium-sized enterprises to get credit, hire workers to make batteries, and produce goods. They need banks to lend. When the Fed keeps "turning the crank" (printing money) and crowds out space, small banks and regional banks cannot operate. They need a steep yield curve. They need to be able to lend to these industries and then make money from it. Recently, there was a good article in the Wall Street Journal that called the Fed's policy "gain of function," referring to criticism of COVID policies, basically saying the Fed is responsible for destroying American industry and exacerbating inequality in the U.S. He is 100% correct, but he is also a two-faced liar because he also profits from it.

So this economy is interesting. But his point is that he will empower regional banks to lend. And regional banks need a steep yield curve. So what Trump wants to see is a "bull steepening" of the yield curve, which means 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, which is a spread based on the 10-year or 30-year U.S. Treasury yield.

If you look at the current situation in the 1940s, this spread was close to 2%, which was very profitable for banks. And now, this spread is only 20 basis points. A few years ago, it was even negative. So by choking off small banks, you basically choke off the nation’s credit production and industrial production. Therefore, Trump not only wants the yield curve to steepen, but he also wants to remove all those "bad" regulations that hinder small banks from lending to small and medium-sized enterprises. By making banks more profitable, they will do what the government wants them to do.

How Trump Controls the Federal Reserve

Now we need to understand two committees because Trump has his goals. He is the "ambassador" of the Treasury, and he will tell you what they really want to do. So how do they transform the Treasury and the Federal Reserve, two independent entities, into a cooperative body to achieve these goals?

First, we are talking about the Federal Reserve Board of Governors. It has seven governors, all nominated by the president and confirmed by the Senate. This is very important. Trump currently controls the Senate, and we will see if he can maintain control after the midterm elections in November 2026. But if there are any signs, it is that his nominees are having a very hard time getting through. Steven Moran, who was recently appointed to the Federal Reserve Board by Trump, was approved last week by only one vote. So the situation is very tense. If Trump cannot get his nominees through in the next 12 months or so, he is out of luck because the opposing Democrats will not approve his Federal Reserve Board nominees. So he needs more votes. This board controls the interest rate on excess reserves and influences the rate at which banks borrow from the Fed's 12 regional banks' discount windows. Most importantly, the regional Fed presidents are all approved by the Federal Reserve Board by a simple majority vote. So the first step is that Trump needs to get four votes on this board to control the short end of the yield curve and get more people into the Federal Open Market Committee (FOMC), so they can ultimately control the balance sheet.

The FOMC has 12 members, seven of whom are board members, and five are rotating presidents from the regional Feds, with the New York Fed president holding a permanent seat due to their significant influence on the U.S. financial ecosystem. So what does the FOMC do? We know they are responsible for setting the federal funds rate, and they meet monthly or almost monthly to manage the System Open Market Account (SOMA). They decide the scale of quantitative easing, the pace of bond purchases, and which bonds to buy, which is extremely important.

So how does Trump gain control of the Federal Reserve Board? You need to roll the dice and get "snake eyes" and "the old man." Here’s a very interesting chart. We basically see a situation where Trump has two senators, Bowman and Waller, who we know want to become Federal Reserve governors. They were the opposition in the July meeting, wanting to cut rates, while Jerome Powell and the majority wanted to maintain rates. They have publicly pledged allegiance to Trump.

Cook is the person who recently left the Federal Reserve. She suddenly resigned in August. There are rumors that her husband engaged in unethical insider trading during Federal Reserve meetings, and she resigned to avoid being forced out by an angry Trump. This is why Steven Moran was able to get in. Now Trump has three out of seven votes. The fourth is Lisa Cook. If you have been following the media, she is a member recently appointed by Biden. There are allegations that she was involved in mortgage fraud, falsely reporting her primary residence to obtain a lower mortgage rate. Her case has been referred to the Justice Department and may undergo a criminal investigation. Currently, she is very stubborn, refusing to leave or resign. But I think by the end of the year, she will receive some political assurance she wants, and then she will exit. This way, Trump will have four votes and control the board.

The first thing they want to do is accelerate the decline of short-term interest rates. There is an interesting arbitrage behavior that can force the FOMC—even if Trump has not fully taken control—to lower rates faster than expected. If the board lowers the interest rate on excess reserves and the discount window rate, a large amount of money will flood into the federal funds market. This opens up an arbitrage opportunity for large commercial banks. What will they do? Commercial banks will pledge assets to the discount window to borrow funds at a rate lower than the federal funds rate and then lend them out at around 4%, which is a great arbitrage opportunity for storing funds. This arbitrage is basically happening at the Fed, and the Fed now has to print money and give it to the banks, which is completely absurd, and this is why it will essentially force the FOMC to lower rates.

I saw Steven Moran's recent interview, I think it was yesterday or this morning on Bloomberg. He said the Fed's monetary policy is too tight by 2%. This basically gives you the direction they want to go. They want the federal funds rate to drop to around 2%, and they want it to happen yesterday. In fact, if Trump can get Lisa Cook out, he could execute this arbitrage by the end of the year and possibly bring the federal funds rate below 2% soon.

How Control of the Federal Reserve Board Leads to Control of the FOMC?

As I said, all Federal Reserve Board members are permanent voting members of the FOMC. And the board approves the regional Fed presidents to become rotating voting members of the FOMC. I believe that besides New York Fed, Philadelphia, Cleveland, and Minneapolis will be the other four regional Fed presidents with voting rights in 2026. And all 12 regional Fed presidents will face "re-election" in February next year.

How does this happen? Each regional bank of the Federal Reserve (there are a total of 12) has its own board of directors. This setup dates back to a time when each region of the U.S. had different interest rate needs for agricultural tax revenue. Each regional Fed's board consists of three types of members. There are six B and C class board members who jointly elect the president of that bank. So what kind of people are these regional Fed board members? Here’s a list, and all this information will be published online later. You will notice that the board chairs of these Federal Reserve banks are either bankers or industrialists. What do bankers and industrialists always want? They want cheap money. They want a lot of money. So how could these people oppose Trump's policies of lowering rates and increasing the money supply? This would increase their wealth. Because we are all self-interested, I think they are likely to vote for those who will follow Trump's wishes, i.e., adopt a looser monetary policy. If they don’t, the board controlled by Trump will basically imply that if you don’t vote for a dovish chair, we won’t approve him.

So now Trump has seven votes, and he will gain control of the FOMC sometime in the first half of 2026. So once he gains a majority in the FOMC, what can they do? They can return to quantitative easing. They can stop participating…

Now we are in a period of quantitative easing because the Treasury has a lot of debt to issue. And now, the Treasury dares not issue long-term debt. They are afraid, just like during the Great Depression, of long-term debt. So now what is being issued is all short-term debt, which is why the clever action against overregulation is so important, because they need a price-inelastic buyer who can buy these Treasury bonds or bills at any time. But if they control the FOMC, and the FOMC agrees that yield curve control is necessary to achieve the political industrial goals of the Trump administration, they will invest trillions of dollars in debt. The Fed will buy most of these bonds because the members of the FOMC have restarted quantitative easing.

Therefore, through this control of the board and the FOMC and the timeline advancement, Trump can basically create the yield curve I showed from 1942 to 1951.

Why Should We as Crypto Investors Care?

I certainly have a question; there are many mathematical issues regarding the money market here. I know this is a bit like a map of the money market, looking at Japan's situation. But guys, we are here for this. So, with the yield curve control that the U.S. is about to implement, how high can the price of Bitcoin go? This number, you know, is absurdly obvious, $3.4 million. As I stand before you today, do I believe we will get to $3.4 million per Bitcoin by 2028? I would probably say no. But I am interested in its direction of development and the potential scale it could reach. So I hope we can reach a million; others hope to reach it too, which is great, but I am very skeptical about it.

This is not just based on adaptive numbers in terms of thinking dimensions, but on the amount of Treasury bonds that will be issued. What will the situation be like when Trump and his team leave office at the end of 2028? I checked my Bloomberg terminal and researched how much Treasury debt will mature to get these people to lower rates, then I added the estimated $2 trillion federal deficit from now until 2028. This is about the estimate of the fiscal deficit by the Congressional Budget Office. This gives us a number: $15.3 trillion in new Treasury bonds must be issued over the next three years.

How much did the Fed buy during the COVID pandemic? The Fed bought about 40% to 45% of the Treasury bond issuance. I think during this period, this proportion will be higher because the likelihood of foreigners buying U.S. Treasury bonds is lower than before, especially considering Trump's actions. He tends to increase debt for the re-industrialization of the U.S. by devaluing the dollar, which makes others uneasy. So why would I do this? I don’t know; I wouldn’t do it. So we effectively get $7.6 trillion in credit creation. This is the amount by which our balance sheet will grow from now until 2028.

The second part is "false" credit creation. How many loans will be issued to small and medium-sized enterprises across the U.S.? This is a difficult number to predict. Estimating the growth of bank credit is not easy. A more prudent approach is to use data from the COVID-19 period as a reference. During the pandemic phase, Trump launched what he called "QE 4 Poor People," and according to the data released weekly by the Fed, the "other deposits and liabilities" item in bank accounts surged, corresponding to an increase of $2.523 trillion in bank credit during that period. If we estimate that Trump still has about three years to continue stimulating the market, that equates to an additional $7.569 trillion in bank loans.

So, adding it all up, the credit increment from the Fed + commercial banks totals $15.229 trillion. The most uncertain part of this model is assuming how much Bitcoin will rise for every additional $1 of credit. I still use the COVID period as a reference: at that time, the percentage increase in Bitcoin relative to each $1 increase in credit was about 0.19.

You multiply this slope by the $15.229 trillion in credit growth, then multiply by the benchmark price of Bitcoin at $115,000. This is how we arrive at the conclusion that by 2028, the price of Bitcoin will be about $3.4 million, and I am almost 100% sure this will not happen. But I think this is a framework for understanding the flow of credit from the Fed to the Treasury and then from the banking system to fund the re-industrialization of America. We know what happened when this policy was pursued for just one year during the COVID pandemic. What if it lasts for three years? When the Fed and the Treasury work together, printing money and, in their words, sending the U.S. economy into "Valhalla," we will see Bitcoin prices exceed a million dollars.

That’s why I am very confident that the four-year cycle does not apply in this particular cycle. We are in a "military-religious" realignment, and if they can take control of all monetary policy leadership and believe they are highly motivated, that is what will happen. Thank you all.

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