Arthur Hayes - Trump Truth_ Macroeconomic Forecast

1. "Trump-o-nomics" and "QE for the Poor" (Black or White?):

• Industrial Policy: Hayes envisions Trump's administration implementing a policy similar to China's, involving government subsidies and tax breaks to re-shore critical industries in America. These companies will receive cheap bank financing, and be incentivized to hire American workers, leading to increased consumer spending. He states, “The plan is to run nominal GDP hot by providing government tax credits and subsidies to re-shore critical industries (shipbuilding, semiconductor fabs, auto manufacturing, etc.).”
• Fiscal Spending and Debt: This policy is based on large government deficits, funded by selling bonds to banks. The banks can expand lending because the supplemental leverage ratio (SLR) is predicted to be suspended. This "QE for poor people" will result in a falling debt-to-nominal GDP ratio for the US government, because of increased economic activity.
• Investment Thesis: Hayes advocates buying stocks in sectors favored by government policy. Also, he promotes purchasing gold and, especially, Bitcoin as a hedge against financial repression. "Instead of saving in fiat bonds or bank deposits, purchase gold (the boomer financial repression hedge) or Bitcoin (the millennial financial repression hedge)."

2. The Mechanics of Money Creation (Black or White?):

• Bank Lending and Money Supply: Hayes details, using T-accounts, how banks create money "out of thin air" when they issue loans. "The loan officer at JP Morgan is given the government contract and confidently loans $1,000 to Smith and Wesson. Out of thin air, $1,000 of money is created by the act of loaning money." This is amplified by government stimulus checks and subsidies, which become deposits and fuel economic activity.
• Infinite Treasury Financing: Hayes explains that if regulators exempt certain assets like Treasuries and government backed corporate debt from the SLR, banks could theoretically purchase an infinite amount of government debt, “If Treasuries, central bank reserves, and/or approved corporate debt securities were exempted from the SLR, a bank could purchase an infinite amount of debt without having to encumber themselves with any expensive equity.”
• Constraints: Banks are constrained by the equity capital they must hold against debt assets. However, SLR exemptions can remove this constraint allowing banks to massively expand their lending.
• Lowest Comfortable Level of Reserves (LCLoR): Banks will reduce participation in Treasury auctions when their reserves hit the LCLoR. Hayes observes that the banking system is nearing this level, reducing Treasury bond demand.

3. The "Trump Truth" and Global Monetary Realignment (Trump Truth):

• Catalyst for Change: Hayes argues that Trump's policies and rhetoric, which he calls “Trump Truth,” acts as a catalyst, forcing other countries to address their economic imbalances. He states, “I love Trump Truth because it acts as a catalyst that forces other heads of state to acknowledge the issues their countries face and swing into action.”
• End of Petrodollar: Hayes believes that Trump's policies will lead to an end of the "Petrodollar" system, and the start of a new system.
• Devaluation of the Dollar: Hayes believes that the Trump administration will need to weaken the dollar to encourage domestic manufacturing. He predicts that the easiest way to accomplish this is via a devaluation of the dollar versus gold: He floats figures as high as $10,000 to $20,000 per ounce, saying, "If I were Be