The U.S. economy is being rebuilt for war, and Arthur Hayes says crypto will be footing the bill. Not Bitcoin. Not Ether. Stablecoins.
As Trump prepares to flood the system with credit to prop up defense production, Arthur argues that the buyers of this new wave of debt won’t be boomers or Wall Street, it’ll be stablecoin issuers like Tether, quietly buying up Treasury bills with crypto inflows.
To understand this mess, you need to understand where the new money is coming from. According to Arthur, it’s not about GDP, taxes. Trump is copying China’s model where the state guarantees profits for “critical industries” like semiconductors, rare earths, and weapons. That forces banks to lend because profit is guaranteed. And with credit flowing, the U.S. ramps up military production at scale.
MP Materials shows how Trump’s fascist credit plan works
The first test case is MP Materials. They got a $1 billion loan backed by JPMorgan and Goldman Sachs to build a rare earth processing plant. Why’d the banks agree? Because the Department of Defense stepped in and guaranteed a floor price for the minerals, double the Chinese market rate. Oh, and the Pentagon’s now the company’s biggest shareholder.
The deal looks like this: MP borrows $1,000, which creates $1,000 in fresh fiat. That money is used to build the plant and pay workers. Those workers spend money, create more deposits, and keep the cycle going.
Meanwhile, the government buys the rare earths from MP, financed by fresh Treasury debt. The banks convert MP’s loan into reserves at the Fed and use those reserves to buy the debt. Net result? The banking system, the government, and the company all get richer. The fiat supply grows. Welcome to QE for Poor People, as Arthur humorously calls it.
Source: Arthur Hayes
This method doesn’t need Congress. Trump’s Pentagon can sign off on procurement deals directly. Banks will line up to fund anything tagged “critical.” Politicians will fight to get contracts into their own districts. It’s the perfect engine for growth, and inflation.
That’s the catch. As Arthur points out, credit creation outpaces actual production. Labor and materials don’t grow magically. Fiat does. So inflation comes next, and wages go up, goods get expensive, and people who aren’t plugged into the government-banking loop get screwed.
But Arthur says there’s a way to mask the pain: blow a financial bubble. If you inflate an asset class fast enough, the public forgets they’re broke, as long as they feel richer. China did it with housing. The U.S. is going to do it with crypto.
Credit growth will drive a crypto bubble, and stablecoins will buy the debt
As the U.S. turns up the credit tap, Arthur says crypto will moon. He built an index combining U.S. bank reserves and liabilities, and mapped it to Bitcoin. When credit doubled, Bitcoin rose 15x. The more fiat the U.S. creates, the more crypto soars. The Trump team knows this too. That’s why they’ve “orange-pilled” themselves, as Arthur puts it.
It’s strategic. More poor, young, and minority Americans own crypto than stocks. That means when crypto pumps, a broader slice of the population feels richer. Politically, that’s gold. Especially when paired with new policies like allowing 401(k) plans to hold crypto, a pool of $8.7 trillion. And Trump’s new proposal to eliminate capital gains taxes on crypto? That’s the final rocket booster.
But folks, the masterstroke isn’t the pump, it’s the recycling. When crypto market cap rises, some of that cash goes into stablecoins. Arthur estimates 9% of total crypto value ends up in stablecoins. These stablecoins invest in short-term T-bills for yield; safe, short-dated, liquid. The more the market rises, the more stablecoin AUC grows, and the more Treasury bills get bought.
If the crypto market hits $100 trillion by 2028, Arthur estimates $9 trillion will flow into stablecoins, which means $9 trillion of Treasury demand. “That would be a 25x rise from current levels,” he says. That demand will be used to fund all of Trump’s military contracts, rare earth guarantees, and production subsidies.
It’s not new. The U.S. did the same thing during World War II, they issued short-term bills instead of long-term bonds to fund the war. Back then it was war bonds and patriotism. Now it’s stablecoins and yield.
So now the circle is closed. Trump triggers a wartime economy. The Fed doesn’t print, commercial banks do. They’re incentivized to lend by government guarantees. Credit booms. That credit pushes crypto higher. People pile into stablecoins.
Stablecoin issuers buy T-bills. The government gets endless liquidity to fund its military-industrial complex. So if you’re still sitting on the sidelines, sipping light beer and watching the club go nuts without you, don’t. This is the Trump credit cycle. And if Arthur is right, stablecoins are the new war bonds.
