A U G U S T 2 8 , 2 0 2 6

FFTT “Tree Rings”: The 10 Most Interesting Things
We’ve Read Recently

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report at this link:

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August 28, 2026 by FFTT,
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Here are this week’s “Tree Rings”. Have a great weekend! LG

1. “Stan Druckenmiller: Let the bond market speak” (Page 2)
2. “Treasury chief Scott Bessent signals US can “grow out of $40
   trillion debt” (Page 5)
3. “Will AI cause a sovereign debt crisis?” Dwarkesh Patel podcast
   with Dylan Patel (Page 7)
4. “The debt-fueled AI build-out may already be too big to fail” (Page
5. 12)
6. “Countries always go broke the same way. Hubris of power and
   murderous wars.” (Page 13)
7. “Scott Bessent: An economic D-Day is coming for Iran” (Page 17)
8. “Mark Carney calls for global monetary system to replace USD”
   
   (Page 19)
9. “In my judgement, the US Armed Forces have probably
   permanently lost access to 15 Persian Gulf bases. Iran now
   poised to control access to the Gulf States. US will have to
   negotiate new access in western Saudi, Israel, Southern Europe.”
   – US Army General (Retired) Barry McCaffrey (Page 21)
10. “BTC hits resistance at $80,000 as rally momentum cools” (Page
11. 25)
12. “Warsh Jackson Hole inflation warning signals possible hike”
    
    (Page 27)

Luke Gromen, CFA
FFTT, LLC
[email protected]
www.FFTT-LLC.com
Follow us on X:
@LukeGromen

“Stan Druckenmiller: Let the bond market speak”

Stan Druckenmiller: Let the bond market speak – 8/24/26

Let the Bond Market Speak - WSJ

The long-term Treasury yield is the most important price in the world. It is also the only fiscal disciplinarian the U.S.
has left. Neither party will run on entitlement reform. Both have spent the past decade expanding commitments while
ignoring arithmetic. Democracies don’t repair their finances because a budget office publishes a table. They repair
them only when the cost of inaction becomes visible and immediate, when mortgage rates bite, when auctions tail,
when the political price of a rising long bond finally exceeds the political price of touching spending.

At prevailing rates, interest expense reaches 4.5% of GDP by 2033 and 144% of all discretionary spending by 2043.
We are tracking those markers early. Anyone who tells you entitlements won’t be cut is lying—not about the outcome
but about who decides it. Either we restructure the promises deliberately, on our terms, protecting those who most
need them, or the bond market restructures them for us, all at once, on its terms.

Tree Ring: This week, Stan Druckenmiller made waves with his WSJ op-ed criticizing Scott Bessent for managing the
UST market, and calling for the US to cut Entitlement spending. To his credit, Druckenmiller has been warning about the
US Entitlement situation for 15 years, calling it “the most unsustainable situation I have ever seen in my career” in 2016…

Druckenmiller: [US entitlement picture] “the most unsustainable situation I have ever seen in my career” – 4/3/16

http://www.zerohedge.com/news/2016-04-03/stanley-druckenmiller-most-unsustainable-situation-i-have-seen-ever-my-career

…a sentiment that JPM CEO Jamie Dimon joined him in sharing just three days after Druckenmiller said the above back
in 2016:

Dimon – US entitlements are “a tragedy we can see coming” – 4/6/16

http://www.businessinsider.com/dimon-us-has-serious-issues-2016-4

I do not believe that these issues will cause a crisis in the next five to 10 years, and, unfortunately, this may lull us
into a false sense of security. But after 10 years, it will become clear that action will need to be taken. The problem is
not that the US economy won't be able to take care of its citizens — it is that taking away benefits, creating
intergenerational warfare and scapegoating will make for very difficult and bad politics. This is a tragedy that we can
see coming. Early action would be relatively painless.

…but as so many US elites and policymakers have done in the past 20 years, Druckenmiller and Dimon are missing the
second and third derivative implications of what they espouse, and as a result, fail to grasp that it is already too late to
implement what they advise – trying to reform Entitlements into 125% debt/GDP and 7.4% of GDP fiscal deficit is
guaranteed to drive a worse financial crisis than 2008. Three former Fed officials gave the reasons for this at a
Peterson Institute conference in May 2015, starting with former Dallas Fed President Richard Fisher:

“If the public believes it can’t rely on Social Security and Medicare, that will suppress US economic growth because the public
will consume less to save more – that changes the dynamics of our economy.”

-Former Dallas Fed President Richard Fisher, May 2015

Fisher’s point? If Entitlements are called into question or reduced, Americans (whose savings rate is among the
lowest in the world) will begin saving more (or paying more for their own parents’ care) and that will reduce
consumer spending, which is 2/3 of GDP…which would reduce US receipts, sending the US deficit up as fast or
faster (given a levered economy) than any savings from cutting Entitlements.

Next up at the May 2015 Peterson conference was former Fed Chairman Alan Greenspan:

“Long term productivity has slowed, this has driven entitlements from 4.7% of US GDP in 1965 to 14.7% of GDP now. If
productivity kept improving, it would keep increasing living standards and wages. We need to shrink entitlements back as a
percentage of the pie, and we need to resolve it before we have a crisis…Unfortunately though, I don’t see how we are going
to get out of this.”

-Former Fed Chair Alan Greenspan, May 2015 (onstage with Fisher, above, and Larry Lindsay (next page))

Greenspan did not see how we were going to get out of this without a crisis. The piece de resistance comment
from the three former Fed officials that day in May 2015 came from former Fed Governor Larry Lindsay, as he spelled out
exactly what the market implications are of US policymakers’ subsequent inaction over the past 11+ years:

“By the way, this always ends this way – Rome, the Ming Dynasty, Zimbabwe…it’s so depressing. It always, always, always
ends this way, this end game we’re all talking about. The financial arrangements of the state are no longer sustainable…it is
not a pretty change if we get there, and it is a matter of political liberty because government will NOT voluntarily let itself go out
of business…it will use all its powers available to government to fund itself.”

-Former Fed Governor Larry Lindsay, with former Fed Chair Alan Greenspan and former Dallas Fed President
Richard Fisher at the 2015 Peterson Institute on May 19, 2015

Paying for the Past | 2015 Fiscal Summit

Druckenmiller’s WSJ op-ed this week was all the more curious given Druckenmiller’s WSJ op-ed of December 16, 2018,
in which he begged…BEGGED…for the Fed not to tighten policy…

Stan Druckenmiller and Kevin Warsh: Fed tightening? Not now – 12/16/18

Fed Tightening? Not Now - WSJ

…due to “bank stocks being down 15% since October 1 [2018] and other economically sensitive sectors, like housing,
transport, and industrials are down by double digits” [i.e., Sectors that were sensitive to higher rates were falling in price,
the very thing Druckenmiller was criticizing Bessent for intervening via UST buybacks]”…

U.S. financial-market indicators also signal caution. Market prices may be showing their true colors for the first time since QE’s
expansion. These indicators aren’t foolproof, but they have a better track record than economists. Bank stocks are down about

15% since Oct. 1. Other economically sensitive sectors, like housing, transport and industrials, are down by double digits,
underperforming the broader markets. Credit markets are softening, and the decline in major commodity prices is foreboding.

…despite Druckenmiller noting that economic growth and employment outlooks were still strong…

These indicators are at odds with strong U.S. economic growth for 2018, which will come in at around 3.25%. Labor markets
also remain strong, although they too are a lagging indicator.

…before Druckenmiller went on to warn that Fed tightening would lead to higher rates, and criticize the Fed for its silence
on QT plans that might drive yields higher still…all of which is a direct contradiction to Druckenmiller’s criticism of Bessent
for doing something remarkably similar…but just this time, it is the US government’s fiscal position that is the “interest rate
sensitive sector” most at risk:

The Fed’s balance sheet is where the money is. Yet it has provided little additional clarity on its balance-sheet plans since
Chair Janet Yellen’s tenure. At a time of global quantitative tightening and uncertain economic prospects, the Fed’s silence on
its asset holdings is contributing to the tumult. We were assured by policy makers that QE provided large benefits to the real
economy. If so, won’t its reversal in the form of QT come with a cost? It can’t all be rainbows and unicorns.

What do we think Druckenmiller’s point was?

1. Maybe Druckenmiller was short LT USTs and angry that Bessent’s intervention had cost Druckenmiller
   money – we are told that coming into last week, one of the most consensus macro positions on Wall
   Street was a steepener trade (betting on higher LT UST yields.)
2. Maybe Druckenmiller does not realize that the point of no return on the US fiscal situation that
   Druckenmiller has been warning about for the past 10-15 years has already been crossed (as we
   highlighted in these pages last week and will highlight again in a moment), and therefore does not yet
   understand that Bessent did not have a choice. (This is our primary base case.)
3. Maybe Druckenmiller was engaged in Kabuki theater to provide political cover for Bessent and Warsh to
   formulate a plan to deal with the rapidly-worsening US fiscal situation.
4. Maybe Druckenmiller realizes that the point of no return on the US fiscal situation has been crossed, and
   so given that he is seen as the mentor of both Bessent and Warsh, wants to give investors a warning and
   distance his own legacy from the coming policy response (dollar debasement) by going on the record in
   the WSJ (This is our secondary base case.)
   
   It remains a variant perception that the US fiscal position is past the point of no return, for which the only way
   out is a significant devaluation of US debt/GDP. The dollar debasement trade is back on, “bigly.”

We continue to add to our gold holdings; we are adding to our silver holdings; and we have begun adding back
our BTC holdings, but cautiously (more on why “cautiously” in a moment).

Let’s watch.

“Treasury chief Scott Bessent signals US can “grow out of $40 trillion debt”

Treasury chief Scott Bessent signals US can “grow” out of $40 trillion debt – 8/20/26

Treasury chief Scott Bessent signals US can 'grow' out of $40 trillion debt

Treasury Secretary Scott Bessent on Thursday said the U.S. can “grow” its way out of the $40 trillion national debt, a
milestone reached Wednesday. “Well, I mean, look Sara, there’s nothing magic about the $40 trillion number, and
we can grow our way out of that,” Bessent told “Squawk on the Street” co-host Sara Eisen on CNBC.

Tree Ring: Bessent’s statement above is a lie. It is unclear if Bessent is lying on purpose or if he is basing his statement
on a false first principle in the same way that the US housing market and financial system in 2005 was based on the false
first principle that “home prices have never fallen nationally.”

The US cannot “grow out of its $40 trillion debt” because the obligations rise faster than inflation…as we noted
last week in these pages:

YTD US Federal “True Interest Expense” (TIE, HHS + SSA + Gross Interest + Veterans Affairs) through fiscal 3q26
= $4.375 trillion = 105% of receipts…growing 7.5% y/y on a weighted basis while receipts are only growing 4%...

and worse, $3.085T of that $4.375T that is HHS, SSA, and VA are inflation -adjusting:

THE US OWES $3 TRILLION PER YEAR IN A HARD CURRENCY IT CANNOT PRINT, AND AN ESTIMATED $100
TRILLION IN HARD CURRENCY OFF-BALANCE SHEET OBLIGATIONS (MEDICARE, MEDICAID, VETERANS
BENEFITS.)

i.e., the faster inflation rises, the faster they will outrun receipts…i.e., Bessent has an “EM hard currency debt
spiral problem”, or if you prefer, a “Weimar gold war reparations problem”: Entitlements are owed in a hard
currency the US cannot print!

Furthermore, an AI-driven healthcare productivity miracle is not a solution either (despite what Warsh may
believe, and would like investors to believe) because it implies job losses among healthcare (among other white
collar jobs and industries), which is the biggest employer in 38 US states, mostly in administration.

This means “AI productivity miracle in healthcare” will drive a sharp decline in US Federal receipts (half of which
come from employment), likely followed by GFC-level delinquencies and defaults on mortgages and consumer
loans from healthcare employees, nationwide, followed soon after by a GFC-level banking crisis.)

We have been writing in these pages for several years that “the pace of AI and robotics productivity gains are
fundamentally incompatible with our debt based monetary system”…and that “too fast of AI and robotics
productivity gains will drive a consumer debt crisis, followed by a banking and sovereign debt crisis”…

…but in just the last month or two, US AI-focused analysts have begun to realize our points above, which has
huge implications (more on this in a moment.)

It remains a variant perception that the US fiscal position is past the point of no return, for which the only way
out is a significant devaluation of US debt/GDP. The dollar debasement trade is back on, “bigly.”

We continue to add to our gold holdings; we are adding to our silver holdings; and we have begun adding back
our BTC holdings, but cautiously (more on why “cautiously” in a moment).

Let’s watch.

“Will AI cause a sovereign debt crisis?” Dwarkesh Patel podcast with Dylan Patel

Dwarkesh Patel podcast with Dylan Patel – 8/25/26 (via JF)

Dylan Patel – Two labs will soon control most of the world's workforce

Tree Ring: We have been writing in these pages for several years that “the pace of AI and robotics productivity gains are
fundamentally incompatible with our debt based monetary system”…and that “too fast of AI and robotics productivity gains
will drive a consumer debt crisis, followed by a banking and sovereign debt crisis”…but in just the last month or two, US
AI-focused analysts have begun to realize our points above, which has huge implications.

This week, AI podcaster Dwarkesh Patel and Dylan Patel, CEO of SemiAnalysis, sat down for a conversation and touched
on a topic we have been discussing for the last several years: That the pace of job disruption of AI and robotics is
fundamentally incompatible with our debt-based monetary system. At 48 minutes, they ask “Will AI cause a
sovereign debt crisis?”, and Dwarkesh begins to lay out why AI likely will cause a sovereign debt crisis…

00:48:48 – Will AI cause a sovereign debt crisis?

Dwarkesh Patel: You and I have been debating off air for the last few days whether there will be a sovereign debt crisis as a
result of AI. The logic is this. As we were mentioning, you have a situation where very little investment turns into a lot of

money. So the rate of return—

Dylan Patel: What a f*cking problem, dude. Oh my God. Can’t believe it.

Dwarkesh Patel: No, it is a huge problem for everybody else who can’t turn a little money into a lot of money. So the rate of
return is incredibly high. Even at the data center level, if you build a data center and you’re trying to get rented out to an
Anthropic or an OpenAI for 10x what it costs you on a depreciated basis to build it, it’s f*cking crazy. You turn $1 into $2 or $10
or something at the end of the year. That raises the rate of interest higher.

Now, if the rate of interest goes higher, and if it does that for the entire economy… People are borrowing more and more

money. They’re competing against the other lending that the government would’ve done, or that other companies would’ve
done, or that you as a consumer or a mortgage buyer would’ve done. That’s making it more expensive for everybody else to
borrow. This has huge implications for tons and tons of people. Sorry, I’m going to go on a bit of a monologue here, but we’ve
been thinking about this together.

I think the US will be fine at the end of the day. Because if the data centers are built in America, you can fundamentally just tax
the data centers. But the way the current tax system is set up, corporate income is less than 10% of federal revenues. 80%
plus is payroll taxes and income taxes, which, as more and more automation happens, will shrink.

At the same time, on the spending side, currently 20% of tax revenue spending goes towards servicing the debt, paying
interest payments on the debt. Now, a lot of the debt is short duration, so it rolls over every five years. Why are you f*cking

laughing?

…before being interrupted by Dylan Patel laughing at Dwarkesh, noting that Dwarkesh and Dylan only just began
thinking about this in the last month!

Dylan Patel: Because it’s things you’ve learned in the last month.

Dwarkesh Patel: Like it’s any different for you. Like you got a degree in f*cking financial economics.

Dylan Patel: I didn’t. The internet thinks I’m a beekeeper. Few months, few months.

Dwarkesh Patel: Now I’m self-conscious.

Dylan Patel: No, it’s good. You’re doing good. I just think it’s funny. A million people listen to this guy who just learned about
debt this month.

As we listened to this section, we reacted as follows: OMG, THE AI GUYS HAVE ONLY JUST RECENTLY REALIZED
THAT AI WILL BLOW UP THE GLOBAL FINANCIAL SYSTEM! This is a signpost of acceleration in our view.

Dwarkesh continued laying out the math, and the second and third derivatives, in what we thought was highly convincing
and accurate fashion, noting that if US government interest rates rise 1%, the fraction of tax revenue that goes toward
servicing the debt goes from 20% to 25% over a five-year basis...and if rates were to rise 5 percentage points, that ratio
would go to 40%...but if you take into account the US government is borrowing $2T more every year, then that debt
servicing ratio goes from 40% to north of 60% of US receipts… “so 60% of tax revenue just goes towards paying interest
payments on the debt”:

Dwarkesh Patel: Suppose the interest rates rise 1%. Over a five-year basis, the fraction of tax revenue that goes towards
servicing the debt goes from 20% to 25%. If it rises 5 percentage points, that would go north of 40%. But if you take into
account the fact that the government is borrowing $2 trillion every single year, then that goes from 40% to north of 60%. So
60% of tax revenue just goes towards paying interest payments on the debt.

Dwarkesh goes on to note that the US “is going to be fine, because the tax base will increase if we let data centers get
built in America…but other countries are absolutely f*cked in my opinion.” And while on one level, we tend to agree
that other countries that do NOT have AI data centers will be hurt, Dwarkesh ignores that AI will reduce US
employment receipts, so the US would absolutely be hurt by this as well. In addition, Dwarkesh does not realize
that all these other countries own $65 trillion (gross) and $22 trillion (net) in USD assets, and so as AI “absolutely
f*cks” them, those other countries will sell USD assets to service debt, import food and energy, etc. – I.e., the
“absolute f*cking” of US creditor countries will “absolutely f*ck” US markets and the US economy as well.

Now, I think the US is going to be fine because the tax base will increase if we let data centers get built in America. Other

countries are absolutely f*cked, in my opinion. I was just looking at which countries have a lot of debt, have very little tax
revenue, and also a lot of their debt is serviced quite often. Those countries, like Pakistan or Nigeria, I think are just going to
be very f*cked in this new interest-rate regime.

At this point, Dylan Patel highlights the “crowding out” effect AI is having and will continue having on the US government:
The economics for AI are so good that hyperscalers, which are paying 5-6% interest rates now, will happily pay
8% and still have their economics be extremely favorable…but 8% borrowing by hyperscalers (which are likely de
facto backstopped by the US government) will force US government rates toward 8%...which per Dwarkesh’s
point above, will blow apart the US government and all western government finances, unless the US and western
governments essentially print massive amounts of money to cap yields (GREAT for gold, silver, and BTC):

Dylan Patel: This crowding-out effect is the reason it’s not YOLO 1 billion gigawatts. You’ve got all these industries and
countries that use a lot of debt, all these impoverished countries that you mentioned earlier that are just going to default.

You’ve got consumer packaged goods, all of these companies that make things you see at Trader Joe’s or wherever. They
use a lot of debt. All these telecom companies use a lot of debt. Banks use a lot of debt.

So if interest rates go up in the market — not necessarily the government-set interest rate, but the spread between what the
government says their federal rate is versus what everyone else is charging, because Amazon wants to raise $100 billion of
debt next year or whatever the hell the number is, probably less — you end up with this really challenging problem of, where
does the cash come from?

There is some level that is funded by cash flows and the cash flows keep going up. But the logical thing to do is to invest way
more than your cash flows because then the returns in future years will be amazing. So you have this delta.

Then what’s pushing down on the delta is all of these other things: regulations against data centers, consumers getting mad,
politicians getting mad, regulations against AI, the AI labs not releasing their latest models because of safety reasons. Interest

rates going up are an influence on all of these things. So all of these things bend the curve from what capitalism wants in
terms of pure, simple economics to what the complex system that we have wants, and bend it lower and lower to where not as
many gigawatts as should be built will be built.

Dwarkesh Patel: Well, the interest rate is part of capitalism, right?

Dylan Patel: Yeah, but in the simple economic model versus the more complex what we have.

Dylan Patel then goes on to note that he estimates that the hyperscalers will in aggregate need to borrow north of $5
trillion to fund capex from 2024 to 2029, most of which will occur between now and 2029…

Dwarkesh Patel: What is the rate at which you think Amazon or Anthropic or whatever will be issuing bonds for debt next
year? If they do hundreds of billions of dollars of debt. What is the average rate?

Dylan Patel: I don’t think Amazon will do hundreds of billions of dollars of debt.

Dwarkesh Patel: In total. Let’s say the big tech guys.

Dylan Patel: The hyperscalers in total, and all the clouds… In the modeling that we do, we have about $11 trillion of CapEx
from 2024 to 2029.

Dwarkesh Patel: Total?

Dylan Patel: Total. If you fund a lot of this with cash flows, as much as you can, you still end up with north of $5 trillion of
credit that needs to be issued for this $11 trillion-plus build out.

Dwarkesh Patel: So you don’t think the AI revenue continues even 3x-ing year over year?

Dylan Patel: AI revenue does go up. I don’t think it can go up forever without certain constraints being hit. Labs will have
certain incentives. Labs are not the ones building all the compute in many cases, even though they’re increasingly trying to go
that way.

Dwarkesh Patel: But they’ll have all this cash flow. How much did you say the revenue will be? You think they’ll not have that
much revenue?

Dylan Patel: No, I’m just saying till 2029 there’s something on the order of $11 trillion of CapEx. $6 trillion of that is funded
with cash, and $5 trillion of that is funded with debt. If that’s the case, $5 trillion of debt being raised across the whole

ecosystem does make interest rates go up.

Then what prevents that? There’s a couple things. One, do labs increase their revenue per megawatt more and keep inference
allocations large? In which case, they’re accumulating all the profit across the S&P 500 because everyone’s paying to reduce
their costs. Of course, their profits will also go up, but cash has to come from somewhere. So there’s an upper limit on how
fast their revenue can grow versus the value they deliver into the world. And there’s a diffusion aspect of the technology.

But ultimately labs’ revenues keep going up. They can’t cash-flow fund everything. The optimal scenario is you actually use
credit as much as you can to fund, because even if cash flows from the labs fund a lot of stuff, you want to build more than
that. So there is some amount of credit that gets built.

Our current modeling has $5 trillion of credit and $6 trillion of cash-funded infrastructure investments through ’29. When you
take that, this is not enough compute relative to what the demand growth is from the AI models. So you’ve got the obvious
answer, which is revenue per megawatt keeps going up.

…which Dylan estimates could drive interest rates as high as 8%, because the hyperscalers can easily afford to pay those
higher rates…which will then hurt US banks and drive the discount rate of the entire US economy and stock market
sharply higher, driving asset prices lower…

Dwarkesh Patel: That makes sense. How much do you think interest rates will increase by 2029 as a result of all this?

Dylan Patel: Dude, this is vibing a number, but if you’re vibing a number out… Growth in the world economy is going up a lot,
so why wouldn’t interest rates for Amazon go up from where they are today?

This is going to be extremely vibed out, but recently Meta’s raised at 5 to 6%. I don’t see why they wouldn’t pay 8%. They
would happily pay 8% because the return from the compute that they’re going to build is humongous. The market won’t want
them to, but they’ll want to pay 8%.

The flip side is that if they pay 8% versus the 5%, 5.5%, 6% they do today — a 250 bps increase — that makes everyone else
in the economy also pay 250 bps more, which then causes a lot of things. Banks will scream, because if their credit spread
goes up, their debt reprices faster than their assets reprice. They ultimately end up losing tons of money if their credit spread
blows up.

Dwarkesh Patel: The other consequence of this — this is a point you made — is that if interest rates rise, the discount rate
increases, which means that the discounted cash flows of all equities crater. Which means that even though the stock market
as a whole might be doing fine — the S&P 500 will be fine — any individual stock will probably have just cratered in value,
especially the Buffett, Berkshire type, pay-good-cash-flows-for-30-years type stocks.

Dylan Patel: Yeah. It’s like, “Why would I pay this much for Johnson & Johnson?” They’re seen as a stable stock: good cash
flows, they’ll return their cash flows over time. Or a railway company. Why the f*ck would I invest that much if my discount rate
isn’t 3% or 5%?” It’s now 8% or 10%.

Dwarkesh Patel: For developing countries… Basil Halperin, who’s a good friend and an economist, made this point that we’ll
see a second Volcker shock. In the ’80s, to fight inflation, Fed Chair Paul Volcker raised interest rates more than 5%,
something like 8% real interest rate. That caused some 40 different countries, mostly in Latin America, to default in that
decade. I think that will probably happen again.

Okay, now we’re getting into singularity talk. We’ve been talking about what happens if interest rates rise—

Dylan Patel: I think this all happens before singularity, by the way.

Dwarkesh Patel: Yeah, that’s what I’m saying. We were talking about before singularity, interest rates rise 2-3%, et cetera. At
some point, I think it’s very likely that the world economy will be doubling every single year. This is not happening in five years.
But it’ll happen eventually. There’s this researcher, Damon Binder, who’s done great work on this. If you look at input-output
tables in a fully automated economy… What would it take to double the entire stock of things in the economy every single
year?

Dylan Patel: Yeah. If the economy grows at 3% a year, then rule of 70, that’s 20-something years.

Dwarkesh Patel: Right. But he was like, “Okay, right now we’re bottlenecked by the fact that there’s people, and you can’t
double people every single year.” But in a world where you can also double the labor force every single year, how fast can the
economy grow? I think it could double every single year. At the very least it would be tens of percent every single year.

Okay. The rate of interest should be pretty close to the growth rate. It won’t be exactly that because of consumption, but it

should be pretty similar. Then we’ll go into a world, I think in the 2030s, where the rate of interest is tens of percent. Part of my
brain is like, “It might be hundreds of percent,” but let’s say it’s at least tens of percent.

I’m just like, okay. Every country that is not involved in the production of AI defaults. Every stock that is not an AI stock is worth
basically zero because discounted cash flows are worth nothing. If the federal government can’t figure out a way to tax AI,
servicing the debt is more than the current tax revenue. And you have all these other effects that I’m sure we’re not even
pricing in: you can’t get a mortgage, et cetera, et cetera.

Fundamentally, what is happening in this world? This is all nerd speak, right? But let’s step back. What’s happening?

We’d be entering a totally different growth regime. The economy’s basically saying, “Hey, the opportunity cost of the
government borrowing money to pay people pensions is extremely high now. Because that money could be spent building a
robot factory that builds a robot factory that builds a robot factory.” The opportunity cost of capital is going to increase a ton.
That’s fundamentally the cause of all of these things we’re talking about.

…with Dylan concluding that “If you are really AI-pilled, everything in the economy should trade at 2 or 3 times earnings”.
While this is in our view an extreme view, directionally we think they are exactly right:

Dylan Patel: As interest rates go up, equity markets get pummeled. Even AI companies. Some people who really believe in AI
are like, “Why does Micron or Hynix or Kioxia trade at 2 or 3 times earnings?” It’s like, “Well, if you’re really AI-pilled,
everything in the economy should trade at 2 or 3 times earnings.” If you’re not AI-pilled, then sure, they’re over-earning.

It’s an argument for why — I think memory is going to do great — memory stocks shouldn’t 10x or whatever again. Because if
we’re in the market where there’s that much demand for memory — which means AI’s caused this drastic change in the
economy — then everything should trade at 2 or 3x multiples and the stock market should f*cking crash.

In a sense, Meta trading at… I think they’re like a $1.5 trillion company. It’s like, what? Silly. They’re worth way more than that,
at least in a logical sense. You just look at their cash flows, all the infrastructure they’re hoarding, and all the compute that
they’re going to be able to sell for crazy amounts of dollars per watt, either as tokens because their lab works, or just to
Anthropic and OpenAI.

It ultimately becomes a question of, you have to reallocate all the capital to the AGI. You do that by pricing everyone else out.
So the limiter on AGI is not how fast the research engineers, like our roommate Sholto, can crank the gears. It’s actually just
how much does the rest of the world let that happen?

Because they’re going to regulate. They’re going to obviously increase interest rates. They’re going to say, “No data centers.”
They’re going to say, “Stop building fabs.” They’re going to say, “Oh sh*t, every company’s equity value is tanking, so how can
I pay for AI to increase my business?”

Well then, Anthropic and OpenAI have to start building their own stuff. They’re building their own chips already, or at least
designing their own chips, and it’ll expand out. They’re contracting their own data centers and building their own infra in the
next couple years.

There’s the question of how this reallocation of the economy happens. There’s a lot of downward pressure on it not being just

straight takeoff, even if the models were capable of it. I think you and I believe we’re in a world where models are capable of
that. But slow takeoff is, at least my hope, possible, because of everything in the economy and regulatory world. Government
saying, “Don’t release your models,” the government saying, “Actually, you can’t even use your models internally that much,”
because that’s going to happen soon. They’re already saying you can’t release your models.

If the AI-focused analysts have only just realized that AI and robotics pace of productivity growth is
fundamentally incompatible with our debt-based economic system, things will likely move fast from here: Once
they understand this, the conclusion is “OMG, the US is going to have to print SO MUCH MONEY if it wants AI to
not run out of capital”…which bodes very well for gold, silver and BTC.

As far as we know, we have never seen something like this in history: Western sovereigns are highly indebted,
unable to cover their interest and interest-like obligations out of receipts in several cases, while a new
technology is rolling out that is increasing productivity while also raising borrowing costs and undermining the
tax base of the sovereigns by pushing the marginal cost of labor toward zero.

Gold should outperform most other assets over the next 3-5 years, almost no matter the path or outcome; US
equities and BTC will likely be dependent on the US government providing enough USD liquidity to support the
AI buildout…and when that liquidity comes, BTC should outperform stocks and gold. Let’s watch.

“The debt-fueled AI build-out may already be too big to fail”

The debt-fueled AI build-out may already be too big to fail – 8/25/26 (via BD)

The debt-fueled AI build-out may already be too big to fail - MarketWatch

“Too big to fail” may no longer be exclusive to banks.

The historic artificial-intelligence build-out of the past few years already touches nearly everything in the U.S., from
the stock market’s run to new records to rising utility bills and U.S. Treasury yields.

Tree Ring: When you marry the point made by Dwarkesh and Dylan Patel in the prior Tree Ring point…with the chart
below from last week in the FT which shows that >100% of the quarter-on-quarter growth in private non-residential fixed
investment is coming from the AI boom…

Source: US widens AI-driven investment gap with Europe – 8/24/26

…with the prior Tree Ring point showing that US True Interest Expense is already 105% of receipts and growing nearly 2x
receipts…

…you quickly realize that if the AI boom turns to bust, US economic growth will slow, US Federal receipts will
fall, True Interest Expense will surge to 110-120% of receipts, leading to a crowding out of global USD markets,
sending USD up, UST yields up, and US asset prices down, until the US government bails out AI.

If AI is a matter of national security, then it logically follows that AI is now “TBTF”, which means it will be bailed
out whenever needed, which means the USD debasement trade is back on, “bigly.” Buy gold, silver, and BTC,
especially on any weakness…and if you must own LT bonds, owning LT hyperscaler bonds for the yield pick-up
over USTs likely makes sense, because hyperscalers are likely now just as TBTF as the UST market.

As a side note, we suspect this is what Druckenmiller and much of Wall Street traditional macro does not realize yet.
Let’s watch.

“Countries always go broke the same way. Hubris of power and murderous wars.”

Tree Ring: Geoffrey Fouvry is one of our
favorite analysts on X; we actually met
on X, even though we had both been in
the same Investment Banking class at
Case Western Reserve University MBA
in Cleveland, Ohio, circa 1999.

FFTT also recently finished reading the
book “A Very English Deceit: The South
Sea Bubble and The World’s First Great
Financial Scandal” by Malcom Balen,
which also touched on John Law and the
French Mississippi bubble.

And finally, we highlighted above that
the US fiscal position now appears to be
irretrievable without a significant
devaluation of US debt/GDP (aka
devaluation of the USD) as a result of
the ill-advised Iran war.

All of the above topics came together in
one X post thread from our friend
Geoffrey Fouvry at right, where he
highlights that the French budget prior to
John Law and the Mississippi Bubble
was 223 million livres on war and
interest servicing, against just 212
million livres in receipts…

...which resulted in a total deficit of 124
million livres, which adds up to a deficit
of 124/212 = 58% deficit, which is still
quite a bit higher than the US deficit of
$2.1 trillion/$5.5 trillion in receipts, for a
total of 38% of receipts…

…but that is only true as long as:

1. Interest rates don’t rise.
2. Stock prices do not fall.
3. The AI boom does not bust.
   
   If any of #’s 1-3 above happen, or worse yet, some combination of them or all three, the US deficit as a % of
   receipts will move quickly toward the French fiscal position above.

Fouvry went on to note that France got around this issue by bringing in Scottish economist John Law, who essentially
used MMT (Modern Monetary Theory) to monetize the war deficits:

Fouvry highlighted the Mississippi Company
bubble and crash…

…a version of which has happened in the
US in gold terms, with the Nasdaq (NDX)
down ~30% since the Fed hiked rates in
early 2022:

Fouvry then correctly notes “you can avoid a serious currency crisis if you do a fiscal consolidation”, but that would require
slashing spending on Entitlements and Defense, dramatically…

…which would in turn likely crash stocks and AI, which would easily drive US deficits up by 800-1200 bps of GDP
or more (as happened last two recessions), which would increase deficits by $2.4-3.6 trillion, more than offsetting
the fiscal consolidation…and given debt levels this would ultimately likely still force a “print or default” choice
for the US government and much of the west.

The ill-advised Iran war has pushed the US beyond the point of no return from a fiscal standpoint. Whether that
was a 4-D chess plan or just “hubris and murderous war” does not matter.

Gold should outperform equities for the next couple years, and BTC should join it when the US seems to commit
to increasing liquidity to support UST markets and its new TBTF proxy, the AI sector and hyperscalers (as we
think the US just did.)

Let’s watch.

“Scott Bessent: An economic D-Day is coming for Iran”

Scott Bessent: An economic D-Day is coming for Iran – 8/23/26

Scott Bessent: an economic D-Day is coming for Iran

US Treasury to broaden scope of secondary sanctions on Iran, source says – 8/24/26

US Treasury to broaden scope of secondary sanctions on Iran, source says | Reuters

Tree Ring: Sec. Bessent’s “economic D-Day”
threat and associated press conference started
out so well, with him at his financial threatening
best:

"Let me be clear: any entity that facilitates
money laundering on behalf of Iran will be
removed from the U.S. Dollar system. The
clock just started ticking."

…and then Bessent’s position just completely fell
apart in this exchange, which came right at the
end of the press conference:

Reporter: You describe this as an economic
D-Day, but D-Day wasn’t a threat of invasion,
and the U.S. didn’t give a timeline to
Germany. Why not impose the sanctions
today?

Bessent: Why would I want to blow up the
global financial system?

Bessent’s comment above all but confirmed the point we highlighted last week that both Pres. Obama and Sec.
Kerry made in their Iran negotiations in 2015: That sanctioning Chinese banks out of the USD system would call
into question the USD’s reserve status (“blow up the global financial system” in Bessent-speak):

If, as has also been suggested, we tried to maintain unilateral sanctions [on Iran], beefen them up, we would be standing
alone. We cannot dictate the foreign, economic and energy policies of every major power in the world.

In order to even try to do that, we would have to sanction, for example, some of the world’s largest banks. We’d have to cut off
countries like China from the American financial system. And since they happen to be major purchasers of or our debt, such
actions could trigger severe disruptions in our own economy and, by the way, raise questions internationally about the dollar’s
role as the world’s reserve currency.

That’s part of the reason why many of the previous unilateral sanctions were waived. What’s more likely to happen, should
Congress reject this deal, is that Iran would end up with some form of sanctions relief without having to accept any of the
constraints or inspections required by this deal. So in that sense, the critics are right: Walk away from this agreement and you
will get a better deal -- for Iran. (Applause.)

Remarks by the President on the Iran nuclear deal – 8/5/15

Remarks by the President on the Iran Nuclear Deal | whitehouse.gov

And just like that, Bessent gave the game
away. Western financial press quickly picked
up on the credibility problem Bessent created
for himself…

Bessent’s Iran “D-Day” seen as “more
show than tell” – 8/24/26
Bessent’s Iran ‘D-Day’ Seen as ‘More Show
Than Tell’ - Bloomberg

Move over, Warsh, Treasury’s Bessent
also has a credibility problem – 8/24/26
Move over, Warsh. Treasury's Bessent also has
a credibility problem | Reuters

…while our friend Peter Alexander at Z-Ben
Advisors pointed out to Andrew Ross Sorkin
on CNBC that all Bessent had done with his
threat to “blow up the global financial system”
was “turbocharge global adoption for the CNY
CIPS system” (below), which is precisely what
Angell’s Paradox suggests should happen
(right):

Bessent “turbocharged” global
adoption for China’s CNY CIPS
payment system with new Iran
sanctions – 8/27/26
Bessent 'turbocharged' global adoption for
China's yuan with new Iran sanctions: Peter
Alexander

Perhaps Bessent is playing “4-D Chess”, and his goal all along with these sanctions is to trigger a global flight to
gold net settlement, as a means of restructuring the USD’s reserve status back to a neutral reserve asset (gold)
that floats in all currency terms. If this is the plan, it is brilliant. If it is not the plan, well…it’s too late now; the
world cannot unsee the sanctions or Bessent’s fear of “blowing up the global financial system.”

Gold should outperform either way.

Let’s watch.

“Mark Carney calls for global monetary system to replace USD”

Tree Ring: Everyone was talking about the
renewed trade spat between the US and Canada
this week, and about the Fed’s upcoming annual
Jackson Hole meeting (more on this in a
moment.)

Everyone talked about Canadian PM Mark
Carney’s comments at right…

Source: (1) Mark Carney on X: "For over a year,
Canada has worked intensively and in good faith
with the United States to negotiate a new
comprehensive trade deal. We have been
pragmatic, patient, and persistent. Our goal has
always been to get the best deal for Canadians,
never a deal at any price or on any" / X

…with many American analysts and investors
highlighting that Canada appears to be in a
“middle power trap” of sorts, suggesting that
Canada may have to choose sides between the
US and China, but the American analysts and investors suggesting such a black and white outcome are showing
themselves to be lacking in both their imagination and in their recollection of modern economic history.

Everyone was talking about Carney this week and his supposed lack of options, and about what would be said at
Jackson Hole this weekend, but we saw no one put the two together and recall Mark Carney’s comments from
Jackson Hole in 2019…so allow us to do so, because it offers a very big clue about what options Carney has that
are presently outside the Overton Window of American investors and analysts:

BOE Governor Mark Carney calls for global monetary system to replace the USD – 8/23/19

Mark Carney calls for global monetary system to replace the dollar

Mark Carney, the Bank of England governor, has said that the world’s reliance on the US dollar “won’t hold” and
needs to be replaced by a new international monetary and financial system based on many more global currencies.

In a speech at the annual Jackson Hole gathering of central bankers in the US, he called for the IMF to take charge of
a new system of currencies, insuring emerging economies from destructive capital outflows in dollars and removing
their need to hoard US currency. In the longer term the IMF could “chang[e] the game” by building a multipolar
system, he said.

Having served as the leading central banker of Canada and the UK over the past decade, Mr Carney has significant
influence and is well-regarded by other policymakers. His speech, delivered to other central bankers, will be seen as
an attempt to burnish his credentials as a possible future IMF managing director, appealing to emerging economies in
particular.

Mr Carney will leave the BoE at the end of January but, lacking support from Europe or the US, currently has little
chance of securing the top job at the fund. He used his speech on Friday to lay out the problems of an over-mighty
dollar for the global economy.

The US accounts for only 10 per cent of global trade and 15 per cent of global GDP but half of trade invoices and

two-thirds of global securities issuance, the BoE governor said. As a result, “while the world economy is being
reordered, the US dollar remains as important as when Bretton Woods collapsed” in 1971.

Movements in the US dollar are therefore fundamentally important to other economies even if they have few direct
trade links with the US, he said. This means countries are forced to self-insure and hoard dollars to guard against
potential capital flight, leading to excess savings and lower global growth.

In turn, he said, this dysfunctional international monetary system contributes to lower global interest rates and has
amplified the difficulties central bankers face in addressing downturns.

In the first section above, Carney accurately diagnoses the symptoms of and problems caused by USD dominance, as
laid out roughly 60 years ago by Robert Triffin in “Triffin’s Dilemma.” But it is the sections below that in our view offer a
few options that few American investors and analysts seem to be considering, as Carney noted in the short run, there was
little that countries could do but “play the cards they have been dealt as best they can”…

In the short term, Mr Carney said that countries could do little more than “play the cards they have been dealt as best they
can”, incorporating potential international spillovers into their monetary policy decisions and reacting to global risks. But this
would not continue to work if the US becomes an ever smaller part of the global economy while the dollar remains dominant in
the currency markets. …

…before going on to note that “in the longer term, the solution was to create a multipolar global economy…with more
thought given to a synthetic hegemonic currency’…perhaps through a network of central bank digital currencies…which
could dampen the domineering influence of the USD on global trade”:

In the longer term, Mr Carney said the solution was to create a multipolar global economy rather than waiting for China’s
renminbi to challenge the dollar. For this, he suggested more thought should be given to creating a global electronic currency
that could act as “synthetic hegemonic currency . . . provided . . . perhaps through a network of central bank digital currencies”.

This could “dampen the domineering influence of the US dollar on global trade”, he said, meaning that US shocks would not
reverberate around the world as they do now. “The deficiencies of the international monetary and financial system have
become increasingly potent,” Mr Carney said. “Even a passing acquaintance with monetary history suggests that this centre
won’t hold.”

We are now seven years on from Carney’s comments above, which puts us firmly into the “longer run” time horizon, and
we have Canada pursuing said multipolar interests…and Trump and Bessent threatening Canada with tariffs as a result of
Canada pursuing said multipolar interests…

…as well as threatening to put secondary sanctions on anyone that trades with Iran, sanctions which are likely being
interpreted globally as likely to be imposed on any nation in the future that does not abide US policies of whatever flavor…

both of which suggest Carney has a third option v. just a “black or white choice” of “US or China”: Shift to a
neutral reserve asset system (which is already up and running, via China’s CIPS), using gold that floats in all
currencies as the new “hegemonic currency” he referenced seven years ago.

Virtually every action the Trump Administration is taking to “defend USD hegemony” is actually pushing the world to shift
to an alternative reserve asset, of which gold is the only suitable asset for the moment.

Let’s watch.

“In my judgement, the US Armed Forces have probably permanently lost access to 15 Persian Gulf bases. Iran
now poised to control access to the Gulf States. US will have to negotiate new access in western Saudi, Israel,
Southern Europe.” – US Army General (Retired) Barry McCaffrey

Tree Ring: Decorated retired US Army
General Barry McCaffrey said the quiet
part out loud this week:

Source: Barry R McCaffrey on X: "In
my judgement, the US Armed Forces
have probably permanently lost
access to 15 Persian Gulf bases.
Iran now poised to control access the
Gulf States. US will have to negotiate
new access in western Saudi Arabia,
Israel, southern Europe." / X

Steve Hsu highlighted exactly how
decorated McCaffrey is:

Source: (1) steve hsu on X: "Barry
Richard McCaffrey - retired United
States Army general. Three Purple
Heart medals for injuries sustained
during his service in the Vietnam
War, two Silver Stars, and two
Distinguished Service Crosses." / X

We first heard “credible rumblings” of what McCaffrey wrote above roughly 4-5 months ago from warfighters on the
ground in the Persian Gulf; the first time it was published in mainstream media was two weeks ago, when the NYT openly
connected the US Navy and USS Lincoln’s resupply problems with Iranian missile attacks from early in the war that
severely damaged much of the US Navy’s 5th Fleet base at Bahrain, and curtailed other resupply chains:

Navy and USS Lincoln’s problems are tied to attacks on US base early in war – 8/14/26

Navy and USS Lincoln’s Problems Are Tied to Attacks on U.S. Base Early in War - The New York Times

The aircraft carrier U.S.S. Abraham Lincoln’s supply problems began soon after the first day of the war, as Iranian
missiles and attack drones fell on a Navy base in Bahrain.

The Iranian attack, retaliation for the U.S.-Israeli assault on Tehran, destroyed much of the base. And as it went up in
smoke, so did a major logistics hub that the Navy has relied on for decades.

The Navy needed a Plan B to continue feeding the sailors working around the clock to keep warplanes flying strike
missions, and later to maintain a blockade of Iran’s ports.

With the threat of Iranian attacks at other ports in the region, the Pentagon looked to a base under British
command on the island of Diego Garcia as its supply hub, which is south of the Maldives and roughly 2,200 miles
from where two aircraft carrier strike groups have been operating in the Gulf of Oman.

The loss of the hub in Bahrain has contributed to a host of reported problems on carriers supporting operations
against Iran, as Democratic senators raise concerns about the Lincoln’s 5,000 sailors and their nearly nine-month
deployment.

Senator Richard Blumenthal, Democrat of Connecticut, said in a letter to Defense Secretary Pete Hegseth that the
reported problems included shortages of basic supplies and the deteriorating mental health of its crew members.

On Friday at a military air base in Maryland, Mr. Trump dismissed those concerns. “That ship is moving right now, or
very shortly, and it’s being replaced with another, very similar, ship,” he said.

The Lincoln’s replacement is the Japan-based carrier U.S.S. George Washington, which earlier this week was
heading west through the Strait of Malacca in Indonesian waters en route to the Middle East.

Another carrier, the U.S.S. George H.W. Bush, has been operating in the Middle East for months since deploying
from Norfolk on March 31.

At the war’s outset, Keir Starmer, then the British prime minister, denied the Pentagon access to Diego Garcia for use
in the operation against Iran. That decision drew Mr. Trump’s ire, and Mr. Starmer ultimately relented on March 1,
granting the U.S. military access to the island for what he described as a “specific and limited defensive purpose.”

A U.S. military official, who spoke on the condition of anonymity to discuss sensitive logistics, said the Navy began
using Diego Garcia as the main shipment point shortly after the Navy’s base in Bahrain was heavily damaged.

The use of Diego Garcia as the Navy’s new logistics hub may explain why Iran fired two medium-range ballistic
missiles at the island on March 20.

A friend of ours in that world commented on this NYT article that they were surprised that more people did not figure out
the supply chain issue sooner, given the damage to 5th Fleet headquarters in Bahrain, before supporting Gen. McCaffrey’s
point by saying without a ground invasion and occupation, it will be difficult for US dominance of the Persian Gulf to ever
be restored to where it was before we attacked Iran in February. There was also another hint of US Navy resupply
problems caused by Iran in this story from 10 days ago:

Trump threatens to bomb Oman if it “gets in the way” of US-Iran negotiations – 8/17/26

Trump threatens to bomb Oman if it ‘gets in the way’ of US-Iran negotiations

We did not know it until this war started, but we are told that the Omani port of Duqm is an important US Navy light port
that allows the US to avoid having to go all the way through the Strait of Hormuz to get to Bahrain to resupply. Duqm was
hit by Iranian drones early in the war in another sign that Iran was strategically attacking US Navy resupply logistics,
forcing the US to go all the way to Diego Garcia to resupply…which is probably why Trump is so mad at Oman.

Furthermore, this puts Oman in an untenable position: The US cannot stop Iran from hitting Oman if Oman
cooperates with the US; and now Trump is threatening to bomb Oman if Oman does NOT cooperate. We can
only imagine how easy that situation makes it for Chinese representatives to reach out to the Omani government
to say “We will help you.”

Furthermore, if Iran was able to disrupt US logistics this much, how much do you think China would be able to
disrupt in SE Asia and specifically inside the “First Island Chain”? We are told that if there was ever a war in
Asia, any US friendshoring in Japan would amount to the US friendshoring in Saudi Arabia in a war with Iran –

missiles would level everything, which tells us that either there will be no war in Asia, or no friend-shored assets
in SE Asia and Japan will survive any such war…

Missiles of China – 3/18/26 (via RC)

Missiles of China | Missile Threat

The People’s Republic of China is in the process of building and deploying a sophisticated and modern missile arsenal,
though one shrouded in secrecy due to intentional ambiguity and unwillingness to enter arms control or other transparency
agreements. Beijing features its missiles most prominently in its developing anti-access/area denial doctrines, which use a
combination of ballistic and cruise missiles launched from air, land and sea to target U.S. and U.S. allied military assets in the
Asia-Pacific theater. China is also developing a number of advanced capabilities such as maneuverable anti-ship ballistic
missiles, MIRVs, and hypersonic glide vehicles. The combination of these trends degrade the survivability of foundational
elements of American power projection like the aircraft carrier and forward air bases. China also has a relatively small but
developing contingent of nuclear intercontinental ballistic missiles capable of striking the U.S. homeland, as well as a growing
fleet of nuclear ballistic missile submarines.

…all of which makes these headlines noteworthy, in our view:

Trump shifts aircraft carrier and US focus away from Asia – 8/15/26

Trump shifts aircraft carrier and US focus away from Asia | AP News

US cuts back military drills with South Korea, as Trump woos Kim Jong-un – 8/18/26

U.S. Cuts Back Military Drills With South Korea, as Trump Woos Kim Jong-un - The New York Times

And so the Iran war is now seemingly coming down to a logistics “pain contest”, according to the WSJ: On one hand, the
WSJ suggests Iran is looking to escalate the war, likely knowing that the UST market is straining in no small part due to
the war, as are US military supply chains (next page)…

Iran’s secret plan to escalate the war – 8/16/26

Iran’s Secret Plan to Escalate the War - WSJ

After President Trump signed a memorandum of understanding with Iran in mid-June, administration officials fanned
out to build support for an agreement they hoped would reopen the Strait of Hormuz and start winding down the war.

Iran’s hard-line leaders huddled in Tehran and came up with a different plan, according to Iranian and Arab officials.
In their view the pact was likely just an attempt by the U.S. and Israel to take pressure off the global economy and
buy time for a bigger attack down the road.

Instead of putting faith in talks, they took the past two months to prepare for a bigger fight.

Their efforts include giving the powerful Islamic Revolutionary Guard Corps more control of the country’s regular
army, appointing hardened veterans of the war with Iraq and past internal crackdowns to key posts, expanding
domestic counterintelligence operations and ramping up production of missiles and drones.

The leadership quickly seized the initiative, attacking ships to tighten Iran’s grip on Hormuz and expanding the
battlefield to the Red Sea, which Saudi Arabia has used to get around Iran’s chokehold on the Persian Gulf.

US faces critical shortage of Patriot missiles in Europe, officials tell AP – 8/27/26

US faces critical shortage of Patriot missiles in Europe, officials tell AP | AP News

Trump is losing his war of independence on rare earths – 8/20/26

Trump is losing his war of independence on rare earths

Price of niche rare earth jumps on fears of renewed Chinese export controls – 8/13/26

Price of niche rare earth jumps on fears of renewed Chinese export controls

…even as the WSJ reported this week that labor protests and panic buying of food and gasoline and essentials in Iran is
putting growing pressure on the regime, suggesting the Iranian side of the pain contest is also seeing rising pain…

Labor protests and panic buying signal growing pressure in Iran – 8/26/26

Labor Protests and Panic Buying Signal Growing Pressure in Iran - WSJ

…pain that Trump and Bessent are attempting to add to by threatening
and implementing economic sanctions on any nation that helps Iran:

Our read on all this is bigger picture: First, the US military is
frequently said to ultimately back the USD, via the “carrot” of US
defense umbrella and the “stick” of the threat of
attack/invasion/bombing…

…but the Iran war has significantly reduced the effectiveness of
both the US defense umbrella carrot and bombing “threat”; this
has implications for USD hegemony, as middle powers may be
able to move away from the USD without the threat of violence.

Second, we have been and continue to pursue what we have come
to call "the blockade runner strategy", named after a research
piece our friend Grant Williams wrote circa 2018 about a
Charleston, SC native that was running the Union blockade for the
South.

He realized in doing so that the logistics of the Civil War made it
clear that the South's situation was hopeless. As such, he would
take all payments he was receiving for running the union blockade
(in Confederate dollars) and then immediately convert all of it into
gold bullion.

When the logistics did what he thought they would and the South lost, the Confederate dollar hyperinflated
against gold, and the blockade runner then used his gold to feed Charleston’s citizens, and then also used his
gold bullion to invest and build a thriving business on the other side of it. The blockade runner lived a long and
prosperous and useful life, and if we recall correctly, has a statue erected in his honor in or around Charleston,

SC.

What do we mean? All of the above increases our conviction that the next 2-5 years of price action in US
markets will be defined by equities and home prices up in USD terms, but down in gold terms. Amerizuela price
action.

Let’s watch.

“BTC hits resistance at $80,000 as rally momentum cools”

BTC hits resistance at $80,000 as rally momentum cools – 8/26/26

Bitcoin Hits Resistance at $80,000 as Rally Momentum Cools - Bloomberg

Tree Ring: The strength of BTC’s rally over the past couple weeks surprised us. Our thoughts?

First, the chart at
right and below
show that it is
continuing to
trade very closely
with major
software stocks
(CRM, ADBE,
BTC, NOW all
shown) on a YTD
(top chart) and
1y basis (bottom
chart):

In other words,
BTC is still
trading like a
software stock.

So, are we back to a
debasement regime? In our
view, yes.

Our friends at Northstar
Charts posted this on X this
week, noting that for BTC to
resume a bull market in gold
terms, BTC would have to
rise to 27 oz. of gold.

Will BTC get back to
27 oz. of gold? We
do not know, but
when we price those
three major software
stocks and BTC in
gold terms over the
past year, the price
action of software
stocks would suggest
that BTC could
continue to rally from
here in gold terms.

We are resuming
adding back some of
our BTC holdings,
but cautiously, as the
US fiscal situation
has resumed being
critical (True Interest Expense 105% of receipts, growing nearly 2x receipts), and the only politically plausible way out is
more debasement, soon.

Let’s watch.

“Warsh Jackson Hole inflation warning signals possible hike”

Warsh Jackson Hole inflation warning signals possible hike – 8/28/26

Warsh Jackson Hole inflation warning signals possible hike: Analysis

Tree Ring: It was overwhelming consensus that if Fed Chair Warsh was hawkish at Jackson Hole, LT UST yields would
fall. We have long said that with the US in fiscal dominance (True Interest Expense > 100% of receipts), with US Net
International Investment Position (NIIP) at -85% of GDP with foreigners having $13-14 trillion in USD denominated debt,
and with the biggest marginal buyer of USTs being highly-levered US hedge funds, Warsh’s only choice now is HOW

he wants to make the long end rise – via hikes or cuts – until he and/or Bessent are forced into de facto and then
outright Yield Curve Control (YCC).

We don’t know how many times
investors need to see it happen
before they internalize it, but
Warsh was hawkish at Jackson
Hole…

…and LT UST yields fell for a
moment at 10:00a when his
speech was released…

…and then they took off higher
like a scalded cat, both 10y UST
yields (top) and 30y UST yields
(bottom):

We first showed the charts
below in the June 19 edition of
this report. They show US
total revenues (blue) v.
Entitlements + Defense +
Gross Interest spending (the
“Big 3”), back to 2016.

Rate cuts that turbocharge
inflation, sending USD
down, inflation up, 10y UST
yields up…will significantly
improve the US fiscal
position if they are married
with bank de-regulation
allowing banks to buy more
USTs (as you can see
occurred from 2020-22, when
COVID inflation + Fed QE
briefly pushed receipts back
above the “Big 3” US fiscal
outlays.)

Conversely, rate hikes that
fight inflation will send USD
up, inflation down, and 10y
UST yields up…and therefore
likely destroy the US fiscal
situation even if bank de-
regulation allows banks to
buy more USTs, sending US
receipts down while outlays
rise, sending the USD up
faster, and 10y UST, UK,
Japan, and EU yields up,
wash, rinse, repeat, until a
western and global debt
crisis occurs or USD liquidity
is injected.

The conclusions of these two charts are stark:

a) The only thing that matters is the level of the USD, and;

b) The US and west needs a MUCH weaker USD and higher inflation to avoid a US and western debt spiral.

The two charts below look at the dynamics laid out above from a different lens – the blue line is the US Federal deficit
annually, going back to 1990; the red line is the annual change in foreign held USTs. Same conclusion: If the USD is
weakened, US deficit will fall (esp. if married with bank deregulation, blue dotted line up), while foreign buying of
USTs will rise due to the weakening USD (higher global growth, more foreign fiscal space), IMPROVING the US
fiscal picture…

…but if Warsh hikes to fight inflation, USD rises, 10y UST yields rise (as do other western 10y yields), US receipts
fall with the financialized economy and equities, and foreign held USTs fall (as foreigners sell USTs to service
$13-14T in USD-denominated debt and defend their currencies), DESTROYING the US fiscal picture, touching off
a US and global debt spiral until more USD liquidity is injected.

…and that is why we posted this meme on X: When you are in fiscal dominance, as the US is, falling gold prices
signal that you are moving TOWARD a debt crisis…and as such, any dips in gold and gold miners triggered by
the rise in rates from a hawkish Kevin Warsh should be bought, aggressively.

Let’s watch.

Thank you for reading this edition of Tree Rings. Have a great weekend! LG

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