Bitcoin today is trading at around $120,000. If you’re willing to pay double the price, i.e. $240,000, please contact me immediately. I’ll happily sell you some of mine.
Why would anyone do that? I don’t know. But that’s exactly what investors are doing when they buy shares in “Strategy,” formerly known as MicroStrategy.
The company currently holds about 580,000 Bitcoin, worth roughly $69 billion. But the market values the company at more than $124 billion. In other words, investors are paying nearly double just for the privilege of owning Bitcoin through a corporate intermediary.
Crazy, right? Yet Strategy’s Executive Chairman and co-founder Michael Saylor has managed to convince legions of investors to do just that— pay 2x the Bitcoin price.
He does so by presenting a bunch of made-up metrics to investors— terms like “Bitcoin Yield”, “Bitcoin Multiple”, “BTC $ Income”, and my personal favorite, “Bitcoin Torque”.
One of Saylor’s most clever ideas was to borrow money from investors to buy Bitcoin; the company issued billions of dollars of corporate bonds (which are supposed to be a ‘safe’ and stable asset), then used all the money to buy Bitcoin— an extremely volatile risk asset.
And this is why I think Michael Saylor should be the next Treasury Secretary— or at least be tapped to save Social Security.
I’m only half joking. Because Saylor’s idea to borrow money to buy Bitcoin might be one of the only ways to save Social Security without a serious tax hike or other financial pain.
Let me explain—
The Social Security system was built on a simple formula: workers and businesses pay taxes into the system, and those taxes fund the retirement checks to beneficiaries.
For decades, Social Security ran a surplus—more payroll tax revenue coming in than benefits going out. And that surplus was parked in a giant trust fund.
Unfortunately, though, Social Security’s trust fund was only allowed to invest in one thing: US government bonds.
The result? Pitiful returns averaging a measly 2%.
Now Social Security is running a deficit— the monthly benefits are exceeding payroll tax revenue. So the program’s administrators make up the difference by dipping into the trust fund.
The Social Security Administration officially estimates the fund will be fully depleted by 2033. And when that day comes, benefits will be automatically slashed by about 25%.
Cutting Social Security benefits would be political suicide. So the most likely solution is a major increase to the payroll tax.
But there may be another way.
What if the government were to borrow a bunch of money to start a Sovereign Wealth Fund… And that fund could invest in a diversified, real-world portfolio run by America’s many talented investment managers. Real estate. Commodities. Equities. Precious metals. Crypto. The kinds of assets that can actually grow.
This is exactly what Michael Saylor did. He borrowed heavily from the bond market to buy risk assets. Maybe the US government should do the same.
If the fund could manage, say, 9% annual returns over the past few decades— they could easily pay 6% to bond holders and pocket the extra 3%. Mathematically it works— such a return would reverse Social Security’s looming insolvency if the fund were of sufficient size.
There’s obviously risk in the plan, which is why I’m half-joking. But Social Security is in dire enough shape that all options ought to be considered.
Coincidentally, Congress is discussing setting up a Sovereign Wealth Fund this week… Though I’m not holding my breath on this, let alone any meaningful reform on Social Security.
Peter and I both believe that the inevitable outcome here is that the Federal Reserve will step in to print money and bail out both Social Security AND the Treasury Department.
In fact the White House is already identifying potential candidates to replace Fed chairman Jerome Powell when his term expires next year, as well as other members of the Fed’s board.
It’s pretty clear they want people at the Fed who will cut rates, print money, and bow to the President. So there’s a very good chance that, next year, the Fed will become much more subservient to the White House.
Such a Fed would not hesitate to engage in ‘quantitative easing’ (i.e. ‘money printing’) to the tune of trillions of dollars in order to save Social Security, or to finance massive US government deficits.
The end result will almost certainly be a major bout of inflation— probably similar to 1970s style stagflation.
It’s why we continue to assert that real assets are very sensible investments because they tend to perform so well during inflationary times.
You can hear my complete thoughts on this wild idea in today’s short video, which you can watch here.
https://www.youtube.com/watch?v=CUxx6zFHeH8
You can access the podcast transcript here.
Schiff Sovereign Podcast