Arthur Hayes: AI Will Trigger a Banking Crisis → Then the Fed Prints

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1:05visit westhome.com slash maylin to learn more. And taste a story. Only West Home Nature-led Australian Wagyu can tell. That's W-E-S-T-H-O-L-M-E.com slash M-E-I-L-I-N. It's not just something you made, it's the privilege that you get to work with your hands. It's building something that serves a purpose, proof that you have the grit to keep going. At Timberland, we understand you take your craft seriously, and we do too, which is why our products are built to the highest quality. We put in the work, so you can perfect yours, with purpose in every detail, and crafted with intention. Timberland, built on craft, visit Timberland.com to shop. Bitcoin, I agree with you, we're going to have the money printer go. That should be good for Bitcoin. Bitcoin obviously hasn't reacted as a lot of people thought it would, though it has shown some pretty nice resiliency. I have my theories of why it hasn't really proven as true

2:11digital gold at this moment, but I would love to get your take on where we are with Bitcoin, where you think it's going. It's oftentimes trailed gold, gold's been ripping. You've also mentioned that you've been using a lot of metals gold and even commodities to your portfolio. Tell me about Bitcoin, and where it is now, where it's going. Is it digital gold, or have we broken something down? I think that a lot of people have this erroneous belief that, okay, yeah, they've been told that Bitcoin is a safe haven, and so on January 25th, 2025, they finally believed it as a safe haven after hearing this for over a decade. They bought Bitcoin, and they believe that the market must give them the safe haven return, because they bought it that day, and in six months' time, they should offer more of their other asset, because that's what they were told, and that's how markets work as we know, right? The market has no obligation to give you any return, and most likely, they're just going to take your money, and so I think that people have the wrong expectations.

3:15It's not that, because you finally got the message that you need a safe haven asset, when you buy all of a sudden, Bitcoin has to perform 5x and give you a life raft, so you can equip your job. This is not how it works, right? You need to be able to buy Bitcoin five or ten years ago, right? To be look at 2009 into the present, Bitcoin has outperformed every single major risk asset. By a wide margin, and has outperformed the debatement of the major central bank balance sheets, which most equities have not. Gold has to some degree, real estate has to some degree, but most things have not. Bitcoin has by a wide margin. And so I think it's a, when did you enter the market? It's a question. And you can't expect that the market's going to give you this life-changing return in six months, just because you finally got the message after hearing it for over a decade. So I don't think that Bitcoin is proven or disproven, it's digital gold nature. It's just a, when did you get involved? How much time has elapsed? But when I do believe, and I think most people why they got it,

4:15this is, there's going to be more money printed, and Bitcoin is the most sensitive asset to yet credit flows, which is why I think that the breakdown of the last six months has to do with AI deflation in the Western world, mostly in America, because it's the most flexible legal market in the world, where AI will be better at being a banker, being a lawyer, being an accountant. At least at the junior levels, I'm not saying that a hundred percent of people are going to lose their jobs immediately, but the essay that I put out, I said, okay, what happens if 20% of knowledge workers lose their job? How much credit do they carry on average in the US, car loan, credit card, mortgage? How is the banking system capitalized as low and lost reserves? How much does a potential equity hit? Is essentially these people lose their jobs that are never coming back? There was going to be a point where we're never hiring a junior banker to do a PowerPoint presentation anymore for an MD, or we're never going to hire a $500 CPA to do our taxes. There's going to be the information

5:17into some agent, you'll spit it all out, and then we'll file our taxes, right? These things are not coming back, because not to say that the senior accountant isn't going to be able to do some funky end-run shit and steal money from people. That's definitely going to happen. There'll definitely be some knowledge work in that, but I don't see a lot of these junior roles, which paid very well relative to the average wage, at least in the United States. These are people that are going to lose their jobs afire, the fastest. They already are, we're already seeing an ID version in sort of age cohorts and an unemployment rate. I think if, obviously a lot of your viewers are from America, if you want to look and know what a post AI future looks like, come over here to China. 30% youth unemployment. They don't publish statistics anymore, but it's probably the 20 to 30% range. You have a massive overeducated class of kids who just did at home with the parents, because the factory is now robotic. The innovation is happening with some of the best AI tools at some of these large tech companies, and unless you're the top

6:22at Baida and Tsinghua, you ain't going to job in China. There's no revolution right now in China, because of the social conflict that they have between the government and the people, but this China is a future in terms of what the labor market is going to look like, and so can you take America from a 10 to 30% youth unemployment rate from 18 to 25? What does that do to the credit situation in America where there's a lot more consumer debt embedded in the banking system? We're 70% of all GDP is consumer spending, whereas in China it's about 45%. And so I think you can look at the future and see what China is, and you can forecast that to America, what happens when you have an aggressive rollout of labor-saving technology? Yeah, so we're also seeing quickly decreasing birth rate in those countries as well, so I don't know maybe it's a new equilibrium. So what happens? So what happens then? So you have all these unemployed folks, just money printing, how do you position your portfolio? You obviously try to invest in AI

7:24companies now, other particular companies that you're after, but what do you do with your portfolio in that environment? I don't touch AI because I don't know who's going to make money. I don't know how many you make money in AI. I'm sure we'll figure it out, but I'm not going to be, I'm not going to let my capital figure it out, go to zero. So I'll wait for that. But in terms of how the money printing works, if every loan is an asset on the bank balance sheet, so if you're talking about the highest propensity to earn workers who now know how to have a job, they can't service their credit card payment, their mortgage payment, their car loan, those securities are worth zero. Is there something like a traditional liquidity crunch where there's a confidence crisis in the bank can't also have these loans, but otherwise these folks are going to pay their monthly payment on time. These folks have no more job. And so they're going to, yeah, they'll continue to eat food and buy the cheapest thing they can buy, but they're not going to sweet green and Chipotle and all these things and swipe in their card and going into debt for this stuff. That's what happens to a banking system that's very highly levered, especially the

8:25smaller banks who aren't keeping Morgan and City with a government guarantee. This is the risk. It's not about the big banks. J.P. Morgan is going to be fine. It's like the piece of shit regional bank that had a bunch of credit card loans on the balance sheet because they got an extra 200 basis points over treasury, over sofa and call themselves great managers. Those are the guys who get carried out and ultimately the Fed's going to have to step in and bail them out. Rinse knows that greatness takes time, but so does laundry. So rinse will take your laundry and hand-deliver it to your door expertly cleaned. And you can take the time pursuing your passions. Time one spent sorting and waiting, folding and queuing, now spent challenging and innovating and pushing your way to greatness. So pick up the Irish flute or those calligraphy pens or that daunting beef Wellington recipe card and leave the laundry to us. Rinse, it's time to be great.