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We Study Billionaires - The Investor’s Podcast Network

BTC254: Bitcoin & Macro Overview w/ Luke Gromen Q4 2025 (Bitcoin Podcast)

with Luke Gromen

Published November 19, 2025
Visit Podcast Website

About This Episode

Host Preston Pysh interviews macro analyst Luke Gromen about growing financial stress in the U.S. and globally, focusing on the Treasury's heavy reliance on short‑term funding, strain in repo and funding markets, and the fiscal math of interest plus entitlements nearly consuming all tax receipts. They discuss how Bitcoin acts as an early warning signal for tightening liquidity, why gold is increasingly favored by sovereigns, the contradictory policy push around stablecoins, and how AI capex, energy constraints, geopolitical shifts, and rare earth dependencies further complicate the outlook. Gromen argues policymakers are trapped between preserving the bond market and reindustrializing the U.S., and that some form of sharp market "whoosh down" may be needed before large‑scale liquidity support returns.

Topics Covered

Crypto Blockchain technology Investing Inflation Energy policy and regulation War and empire U.S.-China competition U.S. politics and elections Financial technology

Disclaimer: We provide independent summaries of podcasts and are not affiliated with or endorsed in any way by any podcast or creator. All podcast names and content are the property of their respective owners. The views and opinions expressed within the podcasts belong solely to the original hosts and guests and do not reflect the views or positions of Summapod.

Quick Takeaways

  • U.S. fiscal math is deteriorating, with true interest expense plus entitlements and veterans benefits approaching the entirety of tax receipts, forcing an eventual choice between printing and default.
  • Treasury's multi‑year shift to short‑term bill financing has massively increased weekly rollovers and TGA needs, tightening overnight funding markets and creating a snake‑eating‑its‑tail dynamic with hedge fund basis trades.
  • Bitcoin is acting as the earliest liquidity canary, selling off as funding tightens, while sovereign buyers increasingly favor gold as their primary debasement hedge.
  • Policy proposals around stablecoins and current account dynamics often directly contradict other stated goals like reshoring industry and weakening the dollar.
  • AI's enormous capital demands and its potential to erode the tax base put it in direct structural conflict with the Treasury's funding needs, amplifying future volatility risks.

Podcast Notes

Introduction and episode setup

Host introduces topic and guest

Preston outlines main themes for the conversation[0:22]
• He mentions growing financial stress in the U.S. system, driven by the Treasury's heavy reliance on short‑term funding and signals emerging from the repo market
• He notes that even with record tax receipts, the U.S. still cannot fully cover interest and entitlement obligations
• They will also discuss global pressure points, the dollar, and why Bitcoin remains the earliest warning sign for liquidity conditions

Guest welcome and context

Preston welcomes Luke Gromen back to the show[0:58]
• They briefly reference seeing each other in Nashville but not having much time to talk then
Luke's near‑term macro expectation[1:28]
• Luke says the environment is exciting now and likely to get much more exciting in the next 3 to 6 months

High‑level description of the current "polycrisis"

Request for a simple explanation of what is happening

Preston asks Luke to explain, in plain language for non‑experts, what is taking place in the macro environment[1:31]

Luke's "poly crisis" framing

Luke characterizes the situation as running "headlong toward a poly crisis"[1:37]
• He says there are multiple overlapping stress points rather than just one isolated problem

U.S. fiscal position: interest, entitlements, and receipts

Record receipts but unsustainable obligations[1:54]
• Luke notes there has been a lot of focus on record tariff receipts and record overall receipts
• He defines "true interest expense" as gross interest expense plus entitlement payouts plus Veterans Affairs benefits
• He says true interest expense is about 96% of receipts, at all‑time highs as a percentage of receipts
Implications of high interest + entitlement share[1:58]
• Luke argues that if anything in the economy slows down, this ratio will easily move back above 100%
• Once obligations exceed receipts, policymakers are back in "printer or default" mode, and he asserts they always choose to print because they have to

Short‑term funding reliance, repo stress, and TGA dynamics

Shift to front‑end issuance and overnight funding stress

30‑month shift in Treasury issuance[2:34]
• Luke says the U.S. is now about 30 months into shifting issuance toward the front end because there is not enough demand at the back end of the curve
• He uses a "Red Queen" and Axl Rose analogy: you have to run faster and faster to stay in the same place, or "used to do a little, but the little wouldn't do, so the little got more and more"
Explosion in T‑bill rollovers[3:44]
• In 2013, then‑Treasury Secretary Jack Lew said the U.S. was rolling about $100 billion of T‑bills per week
• Luke says now the U.S. is rolling about $550 billion per week, citing his friend Andy Constan
• The increased weekly rollover volume requires the Treasury to maintain a higher cash balance in the Treasury General Account (TGA)
TGA buildup and overnight funding markets[3:27]
• Luke explains that building the TGA puts strain on overnight funding markets, similar in some ways to the conditions seen in 2019
• He notes liquidity is tightening and the Fed is applying "spot applications" of liquidity via the Standing Repo Facility (SRF)
• As an example, he cites that on Halloween the SRF usage reached about $50 billion overnight, though it quickly went back toward zero
• He emphasizes that this is not a problem that will go away on its own; it will require ongoing liquidity injections

Japanese yields, yen weakness, and global carry trades

Rising Japanese yields with weakening yen[4:06]
• Luke points out that 10‑year JGB yields are at their highest levels in a long time
• At the same time, the yen is weakening markedly, which he describes as "emerging market type" behavior: yields rising while the currency falls
Yen and dollar as carry trade funding currencies[4:27]
• He says that for the last five or more years, the direction of 10‑year JGB yields has led the direction of 10‑year U.S. Treasury yields by weeks to a couple of months
• The reason is that the yen and the dollar have been the two biggest carry trade funding currencies over the last 30 years
• After 1989, the yen became a carry trade funding currency; after Bernanke in 2008, the dollar did as well
• He notes that when the yen gets too strong, the yen carry trade blows up; when the yen gets too weak and the dollar too strong, the dollar carry trade blows up, leaving policymakers "between Scylla and Charybdis"

Energy market stresses: U.S. shale and global demand

U.S. shale production rollover[5:03]
• Luke says U.S. shale production is rolling over
• He cites the EIA as saying that drillers need to drill faster just to keep production flat, with oil around $59-60
Demand not peaking as previously forecast[5:14]
• He notes the IEA previously projected oil demand peaking around 2027 or 2030 but now admits demand is not peaking and is rising faster than expected
• He cites Goering & Rozencwajg research that U.S. shale has accounted for about 90% of world supply growth over the past 10-12 years
• The combination of slowing U.S. shale supply growth with stronger‑than‑expected demand creates another macro stress point

Geopolitics, military power, and the dollar

Russia's success in Ukraine and implications[5:41]
• Luke states that Russia "won in Ukraine" and effectively beat NATO
• He says this matters because he has been told multiple times in his career that U.S. conventional military power ultimately backs the dollar against major powers
• If that perception of military backing has changed, it has important implications for possible rule changes in the global monetary system

Bitcoin as an early liquidity smoke alarm

Bitcoin's signaling role[6:03]
• Luke describes Bitcoin as "the best or last functioning smoke alarm" in the system
• He says Bitcoin is already starting to "cry shrilly" and warn about illiquidity

AI, hyperscalers, and credit risk

Shift in AI funding from cash flow to borrowing[6:27]
• Luke remarks that AI capex was initially funded from retained earnings and cash flow but is now increasingly funded with borrowing and "very creative financing mechanisms"
Rising credit stress at major AI‑exposed firms[6:37]
• He says a friend pointed out that credit spreads on Oracle's debt and its credit default swaps are rising sharply
Semiconductors, chip life, and grid constraints[6:57]
• Luke notes that NVIDIA and the semiconductor sector have been market leaders
• He mentions that the useful life of AI chips is said to be three to four years
• At the same time, he says in some attractive U.S. regions, hyperscalers cannot get new electricity hookups until around 2030
• He raises the question of what a chip with a three‑year useful life is worth if it won't have power for five to seven years, and suggests markets will not like the eventual answer

Hedge fund basis trade and Treasury demand concentration

Fed white paper on hedge funds as key Treasury buyers[7:27]
• Luke references a recent Federal Reserve white paper noting that hedge fund basis trades have been the biggest marginal buyers of mid‑ and long‑term Treasuries since 2022
• These hedge funds have purchased about 37% of net issuance of longer‑term Treasuries and own roughly $1.8 trillion, far above what the official foreign holdings data attribute to Cayman Islands entities
Leverage and volatility risk in the basis trade[8:06]
• Luke emphasizes that these hedge funds are highly levered
• If volatility picks up anywhere in markets, they will have to de‑gross, which means selling Treasuries and potentially dumping up to their $1.8 trillion of holdings
• He connects this to Bitcoin's warning of impending volatility and suggests we may already be seeing volatility starting
System fragility metaphor[8:17]
• Luke likens the situation to "smoking in a nitroglycerin plant" where only one problem needs to ignite before everything catches
• He summarizes the fiscal problem as: "the math ain't mathin' anymore" and says Wall Street is starting to see that the numbers simply do not work

TGA buildup, shutdown debate, and snake‑eating‑its‑tail dynamics

Impact of TGA buildup and government shutdown on liquidity

Preston's question on TGA and shutdown[8:53]
• Preston notes that the TGA grew during the government shutdown and suggests this exacerbated existing liquidity challenges, asking Luke whether this is how he sees it
Luke's response: not mainly shutdown‑driven[9:01]
• Luke agrees that TGA growth clearly added to liquidity tightening
• He recounts that he initially thought most of the TGA rise was shutdown‑related and referenced work by analyst John Comiskey, a Treasury funding analyst
• Comiskey argued that TGA targets are formulaic, based on a need to hold cash equal to around 10 days or two weeks of outlays, and that the driver is the huge volume of bills being rolled from past deficits, not the shutdown
• This insight changed Luke's view: the high TGA level stems from 30 months of front‑end funding decisions rather than tactical shutdown games

Scale of front‑end dependence and implications for TGA

Run‑rate of bill rollovers and need for large TGA[11:41]
• Luke reiterates the current weekly T‑bill rollover of $550 billion and says such size demands a large TGA to prevent failed auctions
• He points out that many believe the TGA will drop from $1 trillion to the $300-400 billion range and deliver a large year‑end liquidity flush, but he doubts that view
• He thinks the TGA might decline only modestly (e.g., to $800 billion), which would be only mildly helpful for liquidity

Bills share, hedge fund demand, and circular self‑funding

Increase in bills share of outstanding debt[12:20]
• Luke notes that bills are now about 22% of outstanding debt, up from perhaps 15-18%, concurrent with much larger deficits
Levered hedge funds as long‑end buyers funded at the short end[12:41]
• Of the long‑end issuance that has been placed, about 37% has been bought by highly levered hedge funds running the basis trade
• Those funds finance their positions at the short end, the same segment being crowded out by the TGA and heavy bill issuance
• Luke describes this as a "snake eating its own tail" dynamic: Treasury's attempt to secure funding at the front end undermines the financing of the main long‑end buyers

Need to suppress volatility across markets

Managing repo, long end, and equity volatility[12:36]
• Luke says authorities must keep repo calm, keep the long end calm, and keep equities calm, because if they allow volatility in one area, it will spread everywhere
• Standing repo usage helps tamp down front‑end volatility but each use adds an inflationary impulse that can make long‑end holders uneasy
• He also flags risks in hyperscalers and private credit; if equity vol spikes there, Treasury vol will spike, hedge funds will de‑gross Treasuries, yields may initially fall then surge, triggering further interventions

Real estate, rates, fiscal dominance, and the "debasement trend"

Anecdotal evidence from housing markets

Preston's real‑estate agent story[18:24]
• Preston shares a friend's account: the local housing market is extremely slow, with very few transactions because many homeowners are locked into low‑rate mortgages and are waiting for low‑rate conditions to return
• After a recent Fed meeting where policy rates were cut 25 bps, local mortgage rates actually stayed the same or went higher, confusing market participants who expected lower borrowing costs
• He says activity has been "completely dead" since, and notes this is the second time since COVID that people expected a big rate‑cut cycle like 2020 that has not materialized

Luke on Powell's constraints and fiscal dominance

Powell cannot be "Volcker"[20:22]
• Luke recalls that in summer 2022 the consensus was that Powell would emulate Paul Volcker and take significant pain to crush inflation
• His firm argued then that Powell could not be Volcker due to the vastly different debt and deficit backdrop
• He said Powell's realistic options were to be Benjamin Strong (leading into a Great Depression outcome) or Arthur Burns (leading into a 1970s‑style inflationary outcome), with those being the "good" choices
How fiscal dominance flips rate‑policy effects[21:03]
• Luke explains that when debt‑to‑GDP is very high, raising rates raises deficits, and higher deficits are stimulative, so hikes can paradoxically stimulate
• Cutting rates in an environment of elevated inflation reduces interest expense and deficits (which is theoretically contractionary) but also stimulates via lower borrowing costs
• Thus Powell's real decision is how he wants to engineer inflation rather than whether to be hawkish or dovish in the traditional sense
Real‑estate sector's misunderstanding of this regime[21:41]
• Luke argues that many in real estate do not yet appreciate that rates can rise whether the Fed hikes or cuts, via either higher nominal yields or higher inflation
• He says people know they need debasement but still think in terms of a one‑off "debasement trade" instead of a long‑running "debasement trend"
• He asserts that the only way to avoid "rates up with hikes" or "rates up with cuts" is to aggressively devalue the currency, for example via a large gold revaluation, which would require far higher gold prices than currently discussed

50‑year mortgages and policy contradictions

Preston's first‑principles critique of 50‑year mortgages[23:23]
• Preston offers a thought experiment: if someone 200 years ago had basic tools to build a house, it would only take a year or two, so why should a modern mortgage take 50 years to pay off?
• He concludes that 50‑year mortgages primarily serve to mask the true cost of housing by stretching payments over a longer period to fit what people can afford monthly
• He adds that from the borrower's perspective, a 50‑year mortgage at around 5.5-6% could be a good deal if high inflation erodes the real value of payments over time, but calls the situation "clown world"
Luke on conflicting housing and labor policies[25:56]
• Luke notes that on one hand the government claims to address housing affordability with 50‑year mortgages and rate cuts
• On the other hand, he says the administration is increasing labor supply by allowing more foreign students and H‑1B visa holders, explicitly to support universities and industries that struggle to find workers
• He argues this undercuts incentives for domestic workers to enter skilled trades or engineering, depressing wages in exactly the sectors needed for reshoring industry
• He also highlights that AI will further exert deflationary pressure on entry‑level wages, compounding the wage‑suppression effect
• Luke warns against confusing government "action" with genuine progress, likening current policy actions to repeatedly punching oneself in the groin and calling it progress
• He stresses that inflation is the fundamental market signal that should direct resources; a truly free‑market response would be to close borders, let wages in critical skills rise, and thereby attract the needed supply

Bitcoin vs gold: liquidity canary vs sovereign debasement hedge

Why Bitcoin is selling off despite macro stress

Bitcoin as an early liquidity source[29:14]
• Luke explains that Bitcoin is one of the earliest sources of liquidity investors tap when markets tighten, so it tends to sell off first when funding conditions deteriorate
• He says the policy mix of trying to support the bond market while suppressing wages and inflation is effectively austerity, tightening liquidity and causing Bitcoin to drop as a warning signal

Why gold is behaving differently than Bitcoin

Sovereign preference for gold over dollars[30:25]
• Luke argues that sovereigns and large official players understand gold as the traditional debasement hedge and have a simple choice with surpluses: buy dollars or buy gold
• He believes they are increasingly choosing gold, especially after seeing post‑2020 inflation and a sustained trend of higher long‑end yields
Wall Street's comfort with gold vs Bitcoin[32:00]
• Preston notes that many Wall Street allocators intellectually "get" Bitcoin but find gold easier to understand and trust, given Bitcoin's technical complexity
• Luke adds that private‑sector managers in the West often cannot withstand Bitcoin's 40-50% drawdowns and high implied volatility, since they are judged monthly or quarterly
• He says Bitcoin has been trading like a tech stock, and when real rates rise, the standard playbook is to sell tech and thus also sell Bitcoin
• He had previously argued that an AI bust would not necessarily drag Bitcoin down, but now believes that in practice Bitcoin will suffer in an AI‑led tech unwind as well, creating a future opportunity but not changing the correlation

Stablecoin "global glut" thesis vs policy contradictions

Fed Governor Myron's stablecoin paper

Proposal for a global stablecoin glut[33:48]
• Luke describes a white paper by Fed Governor Stephen Myron that discusses using stablecoins to create a "global stablecoin glut"
• The idea is that foreigners would prefer holding dollar stablecoins over their local currencies, and these coins would be backed by T‑bills, creating trillions in new T‑bill demand
• Myron analogizes this potential stablecoin glut to Ben Bernanke's earlier concept of a "global savings glut" that kept rates low from 1996 to 2004
Projected effects on rates, dollar, and current account[36:16]
• According to Luke's description, Myron argues that a large stablecoin stock would lower U.S. interest rates, pull flows out of foreign currencies into the dollar, strengthen the dollar, and widen the U.S. current account deficit

Contradiction with earlier Myron and administration goals

Conflict with "Restructuring the Global Trading System" paper[36:44]
• Luke notes that Myron's prior paper, "Restructuring the Global Trading System," explicitly called for the opposite outcomes: a weaker dollar, lower current account deficit, and reduced foreign capital inflows
• He is confused that Myron now promotes a framework that would strengthen the dollar and expand the current account deficit, which clashes with both his earlier work and the administration's stated reshoring objectives
Scale mismatch: actual vs projected stablecoin market[37:08]
• Luke emphasizes that current stablecoin market cap is roughly $300 billion and was about $260 billion when a related "Genius Act" passed, with growth of around $10 billion per month
• He points out that at this pace, reaching $3 trillion by 2028 is unrealistic; even measured from the prior peak of ~$190 billion in early 2022, the compounded growth would take decades to hit $3 trillion
• He concludes there must be some form of forced demand or a conversion of bank reserves into stablecoins to hit Myron's numbers, which carries major inflation and bond‑market implications

Potential hidden pieces and destabilizing side effects

Possibility of reserve conversion[38:08]
• Luke speculates that if authorities converted trillions of bank reserves into stablecoins, that could quickly create the targeted supply and dramatically increase the effective money supply via higher velocity
• Such a move would likely lift inflation and growth but crush demand for long‑duration bonds, as investors would not want to hold 10‑year Treasuries at low yields in an accelerating inflation environment
• He sees the framework as inconsistent with stated goals to weaken the dollar and reduce external imbalances, unless there is a significant unstated component in the plan

Liquidity cycles, COVID lessons, and political timing

COVID‑era liquidity as a template

Preston's lesson from 2020 stimulus[45:18]
• Preston recalls that during the COVID lockdowns, when nobody was working and economies were shut, massive liquidity injections drove stock indices to new all‑time highs within about 30 days
• He says this showed that large liquidity injections can overpower negative fundamentals, and he now looks for similar decisive actions as signals that "game on" liquidity is returning
• He contrasts that with the possibility of slower, more incremental liquidity additions that might only flatten or slightly lift markets over many months, which are much harder to interpret in real time

What could mark the next liquidity turning point?

Luke's view: need for a big "whoosh" or political trigger[47:56]
• Luke says authorities are currently trying to "ride two horses with one rear end" by preserving both the real value of bonds and the currency, which he thinks is unsustainable
• He believes the system will probably require a big market "whoosh down"-a sharp selloff-sometime in the first half of next year to force significant policy changes
• He notes that recent election results suggested a strong "blue wave" if conditions don't improve, which the current administration will want to avoid ahead of midterms
• He also points out that Powell's term ends in May, and that Fed officials' political donation patterns suggest they are not especially inclined to help the current administration purely for political reasons

Treasury's tools, stablecoins as a Hail Mary, and eurodollar risks

What Bessent at Treasury has already done

Continuing and amplifying Yellen's front‑end strategy[49:26]
• Luke notes that Treasury Secretary Bessent criticized Yellen's shift to front‑end funding in 2024 but then maintained and even accelerated similar policies after taking office
• He doubled the run‑rate of Treasury buybacks, focusing on swapping long‑end paper for short‑term bills, and promoted a $3 trillion stablecoin concept concentrated at the front end
Stablecoins as "Hail Mary" for Treasury market[49:58]
• Luke relays that a highly reliable source described the stablecoin initiative as a "Hail Mary" to "prevent the collapse of the Treasury market"
• He frames the objective as finding "repressible balance sheet"-investors willing to hold debt at zero real yields when inflation is above zero

Risks of using stablecoins in the eurodollar system

Potential crisis from privileging stablecoin eurodollars[51:02]
• Luke suggests one idea might be to deem eurodollar deposits that are in stablecoins as fully backed by the U.S. government while leaving others without such backing
• He argues this would suck capital out of the non‑stablecoin eurodollar system, spike the dollar, and immediately create crises abroad, especially in Europe where many investors own dollar assets
• He foresees a scenario where Europeans have to sell U.S. stocks and Treasuries to raise dollars in a dollar squeeze, creating a replay of market conditions where stocks fall, yields rise, and the dollar strengthens simultaneously
• He acknowledges that some emerging markets (e.g., Nigeria) might adopt dollar stablecoins but says the aggregate free capital there is too small relative to U.S. funding needs

Limits of Treasury's unilateral options

Bank reserves and direct distribution as theoretical tools[51:53]
• Luke says Bessent could in theory encourage banks to convert reserves into stablecoins, but notes that banking regulations and capital requirements may limit their willingness to do so
• He also mentions that Treasury could theoretically distribute dollar stablecoins directly to the public without going through the Fed or banks, but that would raise major political questions about the Fed's role
• He concludes that many of Bessent's major cards have already been played, and there are not obvious new, easy levers left that avoid destabilizing side effects

AI capex vs Treasury funding: competing for trillions

AI as a potential breaking point

OpenAI's projected capex vs revenues[52:56]
• Preston references commentary that OpenAI alone might need low‑trillions of dollars in capex over the next five years while currently generating around $20 billion in top‑line revenue
• He notes the enormous mismatch between these numbers and emphasizes this is just one AI company, albeit a leading one
Luke: AI and Treasury chasing the same scarce capital[55:02]
• Luke says this helps explain why Bitcoin is going down: both AI and the U.S. Treasury "need trillions of dollars" and are competing in the same global capital pool
• He argues this competition puts upward pressure on real rates and crowds out risk assets
• He further notes that AI's success undermines the Treasury's tax base by automating white‑collar jobs, meaning the more AI grows, the more Treasury's funding needs also grow due to weaker tax receipts
• He characterizes this as another snake‑eating‑its‑tail dynamic: AI competes with Treasury for funding while eroding the tax base that would service Treasury's debt

Gold vs dollar in the next tightening cycle

Historical pattern: dollar vs gold in crises

Preston's question about a potential regime change[56:38]
• Preston notes that in previous severe liquidity squeezes like 2008-2009, the dollar outperformed everything, including gold, which sold off in dollar terms
• He asks whether, in the next 3-6 months if liquidity keeps tightening, gold could outperform the dollar during the squeeze for the first time in many decades

Luke's case for gold outperforming the dollar

2022 sanctions and the safety of Treasuries[58:47]
• Luke says that by sanctioning Russian FX reserves in 2022, the U.S. signaled to the world that Treasuries were no longer a risk‑free safe haven for sovereigns
Military shifts: Russia, Houthis, and naval chokepoints[58:11]
• He argues that Russia outproduced NATO and effectively beat it in Ukraine, and that the Houthis' actions in the Red Sea show a technological shift in warfare
• He cites Eric Prince's February speech describing how drones and missiles now make traditional naval chokepoints like the Red Sea deadly, forcing U.S. aircraft carriers to maneuver so aggressively that F‑18s fell off the deck
• Luke contends these developments reverse centuries of naval doctrine that control of chokepoints = global power, weakening the perception that U.S. military supremacy backs the dollar
Chinese rare earth leverage[1:00:13]
• Luke stresses that the U.S. cannot go to war without Chinese rare earths, which are critical for missile and weapons manufacturing
• He notes repeated assurances by officials that rare earth deals with China were done or nearly done, yet these have not materialized, reflecting cognitive dissonance
• He compares relying on Chinese rare earths to lending a shotgun to a neighbor who has said he wants to kill you-China would be foolish to supply the materials for weapons pointed at itself
• Based on these three shifts-sanctions on reserves, changing military balance, and rare earth dependencies-he believes sovereigns will increasingly prefer gold over dollars and Treasuries, allowing gold to outperform the dollar even in a tightening episode

Energy infrastructure, AI race, and limits of "wartime" analogies

Grid capacity gap between U.S. and China

China's rapid grid buildout[1:02:15]
• Luke notes that in the past decade, China has added electrical capacity equivalent to the entire United States grid and continues to expand
• He acknowledges some positive U.S. developments like interest in small modular reactors and potential deployments in the late 2020s but emphasizes the U.S. is starting from behind

NVIDIA's view on AI advantage for China

Energy as a deciding factor in AI[1:03:01]
• Preston references Jensen Huang's argument that China may win the AI race simply because it has the energy infrastructure to power hyperscale training, whereas U.S. projects will be constrained by grid limitations

Differences between WWII mobilization and today

Misuse of "wartime footing" analogies

Historical scale of WWII financial mobilization[1:02:57]
• Luke points out that during WWII, the Fed's balance sheet increased 10x in three years, interest rates were capped, top marginal tax rates reached about 95%, and goods were rationed
• He contrasts that with current talk of a "wartime footing," arguing that people underestimate the scale of monetary and social changes that would be required

Information environment and social cohesion then vs now

Transparency of real returns today[1:04:38]
• Preston notes that in the 1940s, citizens lacked the instant access to information that exists today, so they did not see in real time how war bonds were performing after inflation
• Today, anyone with internet access can see negative real yields and assess that buying government bonds at low nominal yields is a bad deal, reducing the willingness to fund large deficits
Erosion of unity and willingness to sacrifice[1:05:46]
• Luke recalls that 1930s investigations into the 1929 crash cast bankers as villains, followed by years of depression and double‑digit unemployment, which created both reform and a social consensus for shared sacrifice
• He argues that modern society lacks that unity; many people feel elites and tech billionaires haven't helped them, so they won't eagerly buy bonds or bear losses to support those same elites
• He believes a large portion of the population would say "let them buy the bonds" rather than viewing it as a patriotic duty, making WWII‑style mobilization politically much harder

Closing and resources

Luke's newsletter and contact information

Mention of Forest for the Trees research[1:06:18]
• Preston says he reads Luke's "Forest for the Trees" newsletter every week and finds it valuable
• Luke directs listeners to FFTT-LLC.com for information about his mass‑market and institutional research offerings and to his X (Twitter) handle @LukeGromen for ongoing commentary

Lessons Learned

Actionable insights and wisdom you can apply to your business, career, and personal life.

1

In a fiscally dominant regime, traditional intuitions about rate hikes and cuts break down; you must think in terms of how each policy path changes deficits, inflation, and the real value of debt rather than assuming cuts are always stimulative and hikes always restrictive.

Reflection Questions:

  • • How do rising or falling interest rates change the government's deficit path in your country, and what does that imply for inflation over the next decade?
  • • In your own portfolio, where are you still assuming that "rate cuts = asset up" without considering the fiscal backdrop and who ultimately absorbs the losses?
  • • What specific indicators (e.g., interest expense as a share of tax receipts) could you start tracking monthly to better understand when fiscal dominance is driving policy?
2

Complex systems often fail at their weakest, most levered points, so it's crucial to map out where leverage is concentrated (such as hedge fund basis trades or AI capex structures) rather than focusing only on surface metrics like headline debt levels.

Reflection Questions:

  • • Where in your business or personal finances is there hidden leverage (explicit or implicit) that could force you to de‑risk quickly if volatility spikes?
  • • How could you build a simple map of the key counterparties and funding dependencies that your career, investments, or company rely on?
  • • What is one levered exposure you could reduce or hedge this quarter to make your overall system more robust to sudden shocks?
3

Policy responses that look helpful in isolation (like ultra‑long mortgages or expanded labor inflows) can be net harmful when they contradict each other and distort the very price signals-like wages and interest rates-that markets need to allocate resources effectively.

Reflection Questions:

  • • Where in your own planning do you see yourself chasing short‑term relief (a lower monthly payment, a quick hire) that might be undermining long‑term incentives or resilience?
  • • How might your perspective change if you evaluated policies or decisions not just on their direct effect but also on the second‑ and third‑order impacts on incentives?
  • • What is one area (housing, career, hiring, etc.) where you could intentionally rely more on undistorted market signals instead of subsidies, special terms, or one‑off fixes?
4

Different assets play different roles in a crisis: highly volatile assets like Bitcoin tend to behave as early liquidity sources, while more established stores of value like gold may attract sovereign flows when trust in state liabilities erodes.

Reflection Questions:

  • • How diversified is your current portfolio across assets that behave differently under liquidity stress (e.g., risk assets, cash, gold, Bitcoin)?
  • • In past drawdowns you've experienced, which holdings did you feel compelled to sell first, and what does that reveal about their real role in your strategy?
  • • What small allocation shift could you make this year to better balance between assets that act as liquidity canaries and those that act as longer‑term credibility hedges?
5

When incentives between major actors are structurally misaligned-such as AI firms needing trillions in capex while eroding the tax base that services government debt-you should expect recurring bouts of volatility and policy reversals rather than smooth, linear progress.

Reflection Questions:

  • • Where in your industry do you see two powerful forces whose success undermines the other's sustainability, and how might that tension show up in prices or regulation?
  • • How could you position your skills or capital to benefit from volatility and policy swings instead of assuming a straight‑line trend (for example, by maintaining dry powder or optionality)?
  • • What is one assumption you currently hold about a "secular growth story" (AI, green energy, etc.) that you should stress‑test against the funding and political constraints behind it?

Episode Summary - Notes by Charlie

BTC254: Bitcoin & Macro Overview w/ Luke Gromen Q4 2025 (Bitcoin Podcast)
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