E123: Trump indictment, de-dollarization, should VCs back Chinese AI? RIP Bob Lee

In the near future, the U.S. will experience a three‑pronged financial crisis: (1) losses on long‑dated bonds will impair regional and community banks, (2) a commercial real estate downturn will metastasize into a banking crisis as unrealized losses are recognized, and (3) a U.S. government debt crisis will emerge.

“I think we are headed for some sort of government debt crisis. I said that there's going to be three prongs to this financial crisis. One was these long dated bonds having unrealized losses, which is causing problems in regional and community banks. The second piece of it is the commercial real estate crisis, which I think is metastasizing right now, which is also going to be a banking crisis once all those unrealized losses come to you. And the third piece of it is government debt crisis.” View on YouTube

By 2030, annual net interest expense on U.S. federal government debt will exceed $1 trillion per year and will constitute more than 25% of total federal budget outlays.

“And I also read that by 2030, we're going to have over $1 trillion of interest expense owed by the US government every year. That is money that's not funding anyone's Social security. It's not funding anyone's healthcare. It's not funding one weapons program. It's not funding anything we want. It's just the big it's going to be more than a quarter of our total federal budget.” View on YouTube

Around 60 days from early April 2023 (i.e., around June 2023), the U.S. debt‑ceiling standoff will reach an intense and highly dramatic apex, raising serious market questions about potential U.S. default on Treasuries and the continued use of U.S. Treasuries as the global risk‑free benchmark asset.

“So the very likely case is that. Relative wealth will decline. So in the near term, I think it's inevitable we have higher tax rates. I've said this before because in order to kind of meet the gap, even if we have these austerity measures or reduced costs or reduce the budget as the Republicans are going to push for as this debt ceiling debate reaches its apex in 60 days from now, which you better believe this is going to be pretty, pretty damn dramatic. And there's going to be real questions of what happens if the US defaults on its treasuries, if the US defaults on Obligations it has on treasuries. There will be a real shift away from using those assets as the baseline of the risk free rate worldwide.” View on YouTube

In the June 2023 U.S. debt‑ceiling episode, Congress will ultimately reach a last‑minute deal that extends the debt ceiling, includes some spending‑cut concessions for Republicans, and avoids a U.S. default on its debt.

“No, I think it's going to be a pretty...straightforward deal where they're going to it's going to come down to the wire. But my guess is no one's going to want to default on the debt and there's going to be some concessions on spending. And ultimately the debt ceiling will get extended, and that those concessions on spending will allow the Republican Party to save face with their voters and say, look, we we got some concessions here.” View on YouTube

In the near future, there will be a major repricing of U.S. office‑tower commercial real estate in major cities, significantly reducing the market value of many properties held by pension funds, thereby worsening the funding status of those pensions.

“So on a previous show, we talked about the commercial real estate looming crisis. And a lot of people thought that some of the comments we were just talking in our book, which is not true, I don't own I don't have a dollar invested in any of these office towers. But you know who does pension funds? That's who owns these office towers. So you're talking about pension funds that are three quarters unfunded, and they may have a lot less funds than they even think they do, because we're about to have a huge reckoning where all of a sudden, these office towers that were supposed to be blue chip, that were supposed to have the best collateral there was in major American cities. Now, all of a sudden, they may not be nearly as valuable as they thought they were.” View on YouTube

Despite funding shortfalls and asset losses, U.S. pension systems will not be allowed to fully default; the government will intervene to ensure pensioners continue receiving payments, though benefit levels may be reduced somewhat rather than going to zero.

“We're not we're not going to allow, given the civil unrest and social unrest risk. And obviously as a democracy, we're not going to allow that all to go to zero and we're not going to let pensioners not get paid. Ultimately, that's just a kiss of death. Maybe pension payments are reduced to some degree.” View on YouTube

Within the coming years, the U.S. will significantly raise taxes on high‑income individuals, with the top marginal tax rate on the wealthiest people eventually reaching around 70%, and this policy will be broadly popular among non‑wealthy voters.

“So there will be higher taxes. So that's I still think I still think we'll end up seeing 70% tax rates on the wealthiest people. 70% I don't see I don't see it being like unpopular. I think it's going to be unpopular with the wealthy. It's going to be popular elsewhere to fill the hole.” View on YouTube

If and when U.S. Social Security reaches insolvency (projected in the 2030–2035 window), the federal government will respond by creating and issuing additional dollars (monetization) to cover the shortfall rather than allowing promised Social Security benefits to go unpaid.

“Those Social Security payments may not end up coming back to us if Social Security is allowed to go bankrupt. So ultimately, the government has to step in and issue new dollars to make that up. Then the economic question is what happens to the value of the dollar, what happens to the value of the economy, and so on as you issue trillions of dollars to fill these holes?” View on YouTube

From 2023 onward, government debt-to-GDP ratios in the U.S. and in most other countries with weaker fundamentals than the U.S. will keep rising over time, and this rising debt burden will not cause a major systemic crisis that makes U.S. sovereign debt a central practical problem (e.g., default, hyperinflation, forced austerity crisis) within the remaining lifetimes of the current hosts (several decades). The U.S. will remain relatively better positioned than other major economies over this period.

“I think that debt to GDP will continue to rise, not just for us, but for every other country in the world whose fate is worse than the United States. And I think that on a relative basis, the United States will continue to be exceptional and that this will not really be an issue in our lifetimes.” View on YouTube

Over the coming years after April 2023, the United States (both government and private sector) will continue to push forward AI research and deployment at very high speed, with minimal sustained slowdown or moratoria, despite acknowledged risks, because of perceived need for productivity gains.

“the reason why we are going to pursue AI at breakneck speed, even though it may lead to some sort of weird dystopian future, is because we need that productivity boost. We have no choice now” View on YouTube

In the several years following April 2023, Saudi Arabia’s PIF and related Gulf sovereign wealth/LP vehicles will successfully attract a growing number and volume of commitments from top-tier global venture and private funds, becoming a major replacement source of capital as traditional U.S.-based LPs (endowments, universities, family offices) remain relatively constrained.

“So I think that that makes a lot of sense, and I think that it'll be successful. It'll work, especially in a moment. Now where US dollar flows from US dollar. Limited partners are very difficult and harder to come by.” View on YouTube

When the facts of Bob Lee’s April 2023 killing in San Francisco become known, it will turn out that he was randomly stabbed by a psychotic homeless person with a substantial prior arrest record who had repeatedly been released back onto the streets under lenient, decarceration-oriented criminal justice policies.

“we don't know exactly what happened yet, but I think we suspect, and I would bet dollars to dimes, that the story is very similar to a case we had in LA recently, that Brianna Kupfer case where a young woman was basically stabbed for no reason by a psychotic homeless person who had been through the revolving door of the jail and criminal justice system, who could have been locked up, who was arrested multiple times but was not kept locked up because of this push for decarceration.” View on YouTube