Dick Cheney Was Wrong

A 5-Year Reader Asks 5 Questions…

Today, we dip our hand into the “Ask El Jefe” bag o’ mail and draw out a question.

This time it’s from “V,” who plates up a series of questions tied to my long-running suggestion to own bitcoin, Solana, and other cryptocurrencies, as well as a couple of broader investing/economic questions. He also challenges me with a reference to Dick Cheney—which we’ll get to later.

First up, “V” writes:

I have been following you for 5 years now, and I seem to have developed trust in you, but so many questions abound. I know economics is a complex subject and difficult to grasp, yet I try my best.

A few lingering questions:

1) Blockchain seems massive. What is the role of upcoming AI and will bitcoin security be compromised in the future?

AI is already integrating deeply into crypto and the blockchain. Crypto firms, for instance, are using AI to analyze underlying code to find errors and weaknesses that black-hat hackers might exploit. Others are employing AI for predictive analytics to suss out potential problems with smart-contract execution… or for enhanced network monitoring to more rapidly detect potential or real threats.

I could go on. I’ll just say AI is everywhere on the blockchain these days and it’s actually making the blockchain a safer, more secure environment, while also providing increasing opportunities for investors such as AI-powered trading bots that are allowing those without a trading background to successfully generate winning trades.

As for bitcoin security… AI is potentially a threat in terms of malicious, automated programs that can speed up and enlarge the scale of crypto-focused cyberattacks.

The saving grace is that even with the most advanced computer technology today, even AI cannot hack the blockchain and re-arrange all the blocks on 51% of the computers running the bitcoin blockchain (51% is what would be necessary for the blockchain to accept that the new ordering of blocks is accurate).

Quantum computing might change that in the future, but work is already underway to thwart that risk.

2) I understand bitcoin is practically immune to government policies and will continue to profit on its own despite the craziness in USA and various world leaders. How is this possible?

Because those who believe in bitcoin see the flaws inherent in fiat currencies, and they recognize that extreme debts are suffocating Western economies, most particularly the US economy.

Bitcoin has no ruler and no political overlord. It exists across millions of individual computers that run the bitcoin blockchain and thus is immune from governmental pressures. Because of that, people all over the world are increasingly putting their faith in bitcoin rather than local currencies.

That faith is what makes bitcoin’s immunity possible and why bitcoin is an antidote to the craziness you mention. It’s no different, frankly, than gold maintaining value over thousands of years. People learned to trust that gold was always a remedy to government lunacy because governments couldn’t control gold.

3) I have heard your past positive predictions on Ethereum and Solana, and eventually bought some Ethereum, but not Solana yet and am leery on buying Solana lately. Why are they so sluggish to perform, unlike bitcoin?

Solana has performed exceedingly well actually. I suggested back in January 2023 that Field Notes readers grab Solana in the low $20s. Today SOL is $145 and was up above $250 in January.

Since then, SOL and many other leading crypto have sold off because of Trump’s tariffs, the Fed’s inaction on interest rates, and an increased focus on bitcoin.

The crypto market moves in what I’ll call “cycles of sentiment.” Right now, the sentiment is focused on bitcoin and not the “alt-coins” (non-bitcoin crypto). At some point, that cycle changes and investors/traders will be pulling big profits out of bitcoin and cycling those profits into the alts. Solana, among others, will shoot sharply higher in that moment.

Also, Solana has a new technology that will soon appear that will see the Solana blockchain running at a blistering 1 million transactions per second. That is going to fundamentally change (in an extremely bullish way) how companies and developers view Solana, which should propel the SOL coin to all-time highs.

4) I noticed you haven’t recommended buying real estate as an option in your portfolio recommendations. Why?

Actually, we do have real estate exposure in the Global Intelligence portfolio, including:

• A REIT (real estate investment trust) that owns oodles of outdoor shopping centers anchored by daily-shopping merchants like Kroger, Super Walmart, etc. (Up 18% as I write this.)

• A farmland REIT which owns farmland across the US that it leases to farmers and shares in the profits. (Up 21%.)

• A grocery-story REIT, which owns land on which numerous supermarkets are rooted. (Up 33%.)

So, we have a decent amount of real estate coverage.

In terms of individual properties, I certainly see huge opportunity for folks to buy investment real estate in popular vacation destinations, including the Mexican Riviera, Spain, Portugal, Costa Rica, Montenegro, and elsewhere. But I tend not to write about that in Global Intel to any real degree because there’s no way for me to recommend specific properties. I leave all that to my colleague, Ronan McMahon, over at Real Estate Trend Alert.

5) I am no economist, by any means. But I believe the US deficit and debt really do not matter if you are the most powerful country in the world, like what Dick Cheney was saying years ago. Am I way wrong about this?

To get everyone up to speed, former VP Dick Cheney once said that “deficits don’t matter.”

Cheney was wrong.

Deficits most assuredly do matter, and we’re seeing the impacts of that taking shape in real time today.

Deficits (the government overspending its budget in a given year) accumulate as sovereign debt. So when Congress spends, say, $2 trillion more than budgeted, as it will do in fiscal year 2025, those trillions land atop the $37 trillion in debt America already shoulders.

To that increasingly larger pile of debt, you have to apply the interest rate that Uncle Sam must pay to those who own American debt.

Those rates are set by the free market—the army of bond investors globally who attend US Treasury auctions. Buyers submit bids announcing the lowest rate they’ll accept for buying American debt. But these days, fewer buyers are showing up to Treasury auctions… which means that the Treasury Department has to accept lower prices/higher yields for the debt it needs to sell to keep the country running. In a recent auction of 20-year bonds, interest rates were set at a rate higher than was expected because so few of the usual suspects showed up to bid.

That, in turn, raises America’s debt-servicing costs, which means Treasury has to sell even more debt to afford the higher interest payments.

But all of this is happening as foreign investors increasingly walk away from the dollar and US debt… which means less and less demand at Treasury auctions… which means higher and higher interest rates… which leads to higher debt repayment costs… which leads to the need to sell more and more debt… which leads to… you can see how this malevolent cycle can tornado out of control.

Debt servicing costs are already 16% of Uncle Sam’s budget—an extreme number. It only grows larger from here.

Even in the best of situations, we ultimately reach a point where the US cannot afford its debt repayment costs. In the worst of situations—say the dollar plunges in value or a fiscal crisis blows up—interest rates in the US could soar to such a degree and so quickly that the bond market seizes up. The knock-on effects would be calamitous for Americans.

So, yeah, to me, Dick Cheney was dead wrong.

Deficits matter.

A lot.