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I need you to suspend your rational mind and engage your whimsical imagination; stay with me.
Take One.
It’s Saturday night at the rebooted Brooklyn Mirage, now called Pacha in New York City, the actual capital of Pax Americana. In all their finery, the masters of the universe are in attendance to move their hips to Keinemusik.
Our protagonist, US Treasury Secretary Scott “Buffalo Bill” Bessent struts to his table behind the DJ in the VIP section. He smirks, a thought crosses his mind, “I haven’t seen so many white people with rhythm since Elvis ripped off southern gospel music and went on The Ed Sullivan Show.”
Citadel’s Kenny G is in town celebrating his evisceration of an over levered SF soy boy, Leopold Aschenbrenner. Bessent does a double take because he thought due to all the time spent in Miami recently, Kenny was into that Latina azzz, “Who is that baddie Kenny is grinding on… on second look, it’s Leopold’s wife.” Nothing beats cucking an over levered west coast poser, even if the chick is a strong six from the Bay Area. YOLO.
Next to Kenny, to Bessent’s surprise and dismay, is his predecessor, former US Treasury Secretary Janet “Bad Gurl” Yellen. She gives him a wave and continues her conversation with Hunter Biden. What the fuck is going on at this party, thought Bessent. I bet Janet is hitting the crack pipe tonight. There is a disturbance in Bessent’s qi. How can this bitch afford a $20k table? He immediately squared the circle because he remembered how lucrative it is to be in the US government. The only reason his hand isn’t in the till as much is that he came into the office already giga rich. But for those plebeian lawmakers running the Ro Khanna, Nancy Pelosi playbook, this behavior is standard.
Janet yelled over at Bessent, “Hey bitch, how’s the market treating you?”
Bessent’s body visibly twitched with anger. This week was tough on him. The US Treasury market wasn’t performing well. In a surprise move, he had to announce his department would surprisingly double long-end bond buy backs to get yields to behave. Unfortunately, the relief rally only lasted for one trading session. By the weekend, yields were above the level pre-announcement. He wishes he could call his real daddy, George Soros, for some advice; maybe Druck would take his call …
Janet continued to pour on the gasoline, “Thought you were better than me, thought you knew markets better than an academic.” She cackled; this was a sound learned from former US Vice President Kamala Harris. “You’re just Trump’s bitch, hahahahaha. We are the same, you pompous cunt. Have a good night!”
And with that, Janet turned into a proper Bad Gurl. She led her posse of toy boys around with diamond studded dog collars courtesy of Jacob the Jeweler. Whispering her favorite Cardi B lyrics into the ear of one of her toy boys, “I want you to park that Big Mac truck right in this little garage.” Definitely little these days, she’s got a secret stash of Reta.
As Bessent fumed, he walked by Arthur and Ansem’s table where they were holding court with a bunch of crypto degen muppets. Arthur motioned to Bessent, and once in earshot, said, “I saw that. Don’t let the haters get you down. The crypto community is with you. You had no choice; we love you. Keep it up! Don’t stop printing money because if the markets go down, there will be no free shit for all the rich people and everyone else in America who believes that if they just believe hard enough in capitalism, they will get rich too. If there isn’t any free shit, then AOC is going to raise our taxes, oy vey.”
And right then Bessent decided he would be the best Treasury Secretary he could be. If Trump needed another ten trillion to pump the markets, he would make it happen.
Cut scene.
Bad Gurl Yellen and Buffalo Bill Bessent are the same whether their rhetoric before taking office differed. They both suffered under the yoke of politicians who couldn’t help themselves but to spend more and more money on whatever nonsense they deemed worthy. But they both decided being the most powerful financier in all the land was worth it. And therefore, when the treasury market convulsed, they responded with clever money printing stratagem.
When they manipulate the treasury market by printing money to cap yields, it creates dollar liquidity which flows into Bitcoin and crypto. I will cover two such episodes where Yellen and Bessent changed the game, and Bitcoin responded positively. The first episode was in late 2023 when Yellen issued more bills than bonds. The second episode is right now when Bessent intervened in the dollar-yen market and then upped treasury buy back notional. Bitcoin ripped off its lows after Yellen announced her money printing scheme, and I argue it will do the same after Bessent reestablished his conviction to follow in his predecessors’ footsteps and materially increase the pace of dollar liquidity creation.
The 5% Level
For whatever reason, both Yellen and Bessent were and are terrified of a 10-year Treasury bond yield close to 5%. The 10-year yield is the most important price in Pax Americana. 30-year fixed mortgage rates because of their pre-payment optionality, corporate bonds, and various other consumer debt products’ yields, price off the 10-year yield. At >5%, consumer and corporate financing become prohibitively expensive, and economic activity slows down. This is why the authorities defend this level with such gusto.
Bills vs. Bonds
A treasury bill has a maturity of less than one year, whereas a bond’s is longer.[1] The closer the maturity is to zero, which is cash, the more liquid and desirable it is to hold for many investors, specifically money market funds (MMF). MMFs want to take as little interest rate and counterparty risk as possible for the highest yield. The safest place to hold cash is with the Fed because the Fed can print money at will with no congressional approval to settle its liabilities. The Fed operates a Reverse Repo Program (RRP) where eligible counterparties can park money and earn a yield close to the effective fed funds rate set by the central bank.
While in theory lending to the US government is risk free in dollar terms because the government can print money, operationally settling its debts requires congressional approval. This is why the debt-ceiling melodrama matters to market participants who cannot hold securities where there is any doubt of full repayment at maturity. If the politicians decide not to approve spending bills, bondholders will not get paid. Therefore, if an MMF is to hold a T-bill, it must yield slightly more than the RRP to compensate for the risk.
In late 2023, just like today, the number one issue for American voters was affordability. Then US President Biden, or at least his puppet master, knew that the plebes finally wised up to what happens when the Fed lowers rates or expands its balance sheet, so that option was off the table; the 2024 Presidential election loomed near enough that it was time to actually give a fuck about the plight of voters. Bad Gurl Yellen knew her boss needed some liquidity to pump markets but also required plausible deniability that he was not outright printing money and stoking inflation. She cooked up a genius money printing caper…
The RRP contained roughly $2.5 trillion. The problem for Yellen the RRP presented was that the money multiplier of funds in that facility is zero because they sit on the Fed’s balance sheet and cannot be re-hypothecated. But if MMFs moved those balances into higher yielding T-bills, then the banking system can re-hypothecate them. This liquidity would find its way into bonds, lowering yields, and pump stock prices. And for us crypto degens put in the bottom on Bitcoin post the FTX bankruptcy.
This busy chart illustrates the relationship. By increasing the issuance, the price of bills fell, and yields rose sufficiently above the RRP yield to force profit maximizing MMFs to move funds between the two instruments. The RRP balance (white) fell from $2.5 trillion to $100 billion by the time Bessent took over on 20 January 2025. This $2.4 trillion liquidity injection, or money printing because the origins were deposits from COVID stimulus, predictably surged into financial markets, and the Nasdaq 100 (green) and Bitcoin (magenta) pumped. The 10-year yield (orange) quickly retreated from the all-important 5% level, and all the while the Fed funds (not shown) rate stayed around 5.3%.
Degen, study that chart. Here be where hopium originates. If you don’t understand why Bitcoin and risk assets pumped even as the Fed held rates at the highest level since 2008 and simultaneously shrank its balance sheet, then you will miss the next bull market that just began. This is the reason academics coined the term Activist Treasury Issuance (ATI) to describe the sorcery Bad Gurl Yellen wielded.
Bessent has the same problem as Yellen. His boss likes to spend money on shit. The shit this time around is another unwinnable Middle Eastern war. But it ultimately doesn’t matter what the US President likes to splooge taxpayer money on, because the Treasury Secretary will borrow affordably.
Operation Twist
Everyone loves cash that pays a yield. A T-bill is the highest yielding, safest in dollar terms, cash-like instrument. Therefore, everyone loves holding T-bills, even us crypto degens hold T-bill derivatives, i.e. USDT, USDC, etc. Bessent knows the market will take as much bill issuance as he is comfortable offering. The problem for Bessent is that T-bills expire in under a year, and the more bills he issues vs. bonds, the faster the debt compounds. Every week he must offer an ever-increasing amount of debt to finance new spending and pay back the old debt. The accelerating growth of the total stock of US debt growth is the result.
By increasing the total share of US debt financed with T-bills, Bessent can count on the most important marginal buyer of US debt to participate: the Fed. The Fed currently prints money, technically creating banking reserves, to purchase T-bills under its Reserves Management Program (RMP). The notional of RMP monthly purchases is at the discretion of NY Fed President Williams, who loves to print money, or in euphemistic Fed-speak is a dove. If Williams believes that the market will not function correctly without more Fed created dollar liquidity, he will instruct his traders to create banking reserves and buy T-bills on the open market. Therefore, the Fed prints money to cash the checks of politicians.
With a motivated buyer of T-bills, Bessent can issue lots of paper and use the proceeds to buy back longer-dated notes and bonds. Bessent can play the yield curve like an out of tune toddler does the cello. He first intimated his powers of manipulation in the direct aftermath of last year’s Liberation Day, when Trump toyed with actually changing the global trading flows with aggressive tariffs but chickened out when the markets threw a fit. Bessent told the market not to test him because he had this amazing power called the Treasury buy back. A little more than a year later, Bessent announced he would use it aggressively to force long-end yields lower.
Out of the blue on August 19th, Bessent announced larger than scheduled buy backs to commence early next month. He increased the total for the next fiscal quarter by a paltry $20 billion at the long-end. Predictably, 10-year yields dropped quickly, but not by that much. Bitcoin awoke from its slumber and aggressively rallied over the next two days. Unfortunately for Bessent, which is why his mood was sour at the clerb, by the end of the next day’s trading session, 10-year yields were higher than pre-announcement. Why?
First, Bessent didn’t go big enough. With a total debt stock of $40 trillion, another $20 billion of buying is like pissing in the wind. Second, the market senses panic because just a few weeks prior Bessent argued for no cap on the usage of the FIMA facility to allow Japan and other large holders of treasuries to borrow printed dollars from the Fed using their bonds as collateral rather than selling said bonds in the open market. Third, and most importantly, the market knows that it can force Bessent to go full retard and do as Yellen did and find some way to inject trillions of dollar liquidity by pushing 10-year yields higher. Bitcoin obviously got the message because it is the global liquidity smoke alarm. If Bessent is Yellen 2.0 with a cock (I guess I don’t know if Yellen is trans, can’t be too sure these days there is so much inclusivity you can’t judge a book by its cover) then Bitcoin is about to go on a monster run off the lows.
Bessent’s Next Move
There are a few ways this can go.
The worst case for dollar liquidity sensitive assets like Bitcoin is that US politicians, led by President Trump, decide to spend less money. I don’t think this is likely, as there are elections to win in a few months. The Democratic Socialists of America politicians, led in spirit by AOC, are kicking ass and taking names.[2] They promise a socialist utopia where no one pays rent and groceries are free. Trump and the Team Red Republicans must respond with their prosperity gospel, which is printed money for rich assets holders who donate money to the party and dreams of a capitalist utopia where if you believe in socialism for the rich and capitalism for the poor you will get rich and live the gilded lifestyle your favorite MAGA influencer peddles. You know the type; the guys look like Miami Vice dressed in head-to-toe Philipp Plein, and the chicks who got their duck lips from the most expensive butcher in Coconut Grove.
With that doom porn out of the way, let’s get back to reality on how Bessent can get serious about printing money.
The best case for Bitcoin would be for Bessent to announce a BOJ style bond market manipulation where he informs the market he will conduct unlimited buy-backs of 10-year plus tenors if the yield is >5%. Initially, 10-year bonds would pump and yields dump as the market showed Bessent some fucking respect. But as with all uneconomical market manipulation schemes, the market will test Bessent and see if he is ready to back up his words with a dollar bazooka.
The middle road, which is the most likely until there is acute stress in the market measured by a MOVE Index print above 130, is Bessent increasing buy backs in drips and drabs. And he finds other obscure programs that allow the Treasury to print money.
Another obvious move would be to drain the TGA to fund buy-backs. Buffalo Bill Bessent recently leaked this proposal to CNBC. The TGA holds roughly $1 trillion.
I do not think it is politically feasible for the Fed to begin outright cutting rates or resorting to unlimited QE like they did in the 2010s until the AI credit bubble pops for real in a few years. Remember that the number one issue for American voters is affordability. And by now, even a TikTok addicted tween knows the Fed prints money by lowering rates and conducting QE.
Bull Market Baby
Whether Bessent pumps fast or slow, Bitcoin will continue its rally. Volatility will increase, so just because the chart appears unidirectional upwards doesn’t mean there won’t be savage mini-corrections. Therefore, unless you are a full-time trader, don’t use leverage. Buy Bitcoin or your favorite shitcoin, and sit tight, and let Bessent cook.
Over at Maelstrom, we are at max risk. Bitcoin, Ether, Ethena, and Ether.fi are our horses. Let’s watch them gallop.
And finally, it couldn’t be a better time for the Flop Network airdrop. This is the time to create something special, and those who participate in the testnet airdrop campaign can get in on the ground floor. I will repeat: there is no pre-sale. You cannot buy $FLOP. Only those who participate in useful ways are eligible. Follow the project @flop_labs on X to learn more about the airdrop.
Happy hunting, you sexy cunts! Let’s do this bull market thang, and two-step 2 Da Moon.
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[1] Technically speaking a treasury bill has a maturity of less than one year, a note of one to twenty years, and a bond of twenty to thirty yields.
[2] AOC - Alexandria Ocasio-Cortez; she is the front runner to be the Team Blue Democrat nominee for president in the 2028 election.
Except... Bessent can't do a BOJ style YCC play: he's not in charge of the Fed. Warsh would need to play that hand.
All Bessent can do is swap bonds for T-bills, or drain the TGA, but that impact would be limited because he would need to issue more debt to refill those coffers before long.
If we really want to see things get silly, Warsh has to play ball.
Thoughts on SLR adjustments to absorb issuance at the front end?