EMERGENCY EPISODE: Why This Financial Crisis Is WORSE Than 2008 | Balaji Srinivasan | Transcription

Transcription for the video titled "EMERGENCY EPISODE: Why This Financial Crisis Is WORSE Than 2008 | Balaji Srinivasan".

1970-01-07T03:08:44.000Z

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Opening Remarks

Intro (00:00)

The problems go all the way to the bedrock of the financial system in terms of treasure trees being the new toxic waste. It's going to be at least as bad as 2008 to probably worsen that. You spent a million dollars of your own money to raise the alarm to the fact that the government is printing trillions of dollars. And what I want to know is how are you so sure that the US economy is in really bad shape? Does Bitcoin have to do with this?


Financial Crises And Their Signs

What signs to look out for? (00:27)

And how on earth could you justify spending a million dollars of your own money to make people aware of this? I do believe that we're in the middle of something or at the beginning of something that is at least as serious as a 2008 crisis. The government is extremely good at kicking the can and that's this primary skill in some ways. So it's hard to know exactly when things will be formally acknowledged as such. I've got a bunch of slides that show that the economic situation is parlous. B, the degree of collapse across a number of different industries and number of different weaknesses will probably necessitate some form of bailouts or printing even if it doesn't look exactly like 2008. A lot of what the financial system does is it evolves to evade last time's pattern recognition. And so it may not look exactly like it used to. Right what form it comes in, whether it's like Treasury buybacks or the People's QV, which are different ways of like injecting money into the system that don't look exactly like the 2008 bailouts, I do believe an enormous amount of money is going to be printed just like radolio, just like a number of other people do. And in such case you want to have outside money, whether that is gold, whether that is a foreign fiat currency that you have faith in that sort of outside the feds control or whether that is Bitcoin or a cryptocurrency Bitcoin in particular is built to be difficult to seize. I think that's part of the answer. And it's not the only thing. You want an allocation, you want to think about other things in life like where you live, your location, again, dahlio also thinks that that is an important thing. You know, early 2010s, Janet Yellen was credibly reported as having known about the housing crisis, having seen it and not raise the alarm. And now I'm actually sort of finding like, you know, people don't want to hear you raise the alarm or whatever. They're like, oh my God, you're a doomer. Why are you saying this? Right? The financial crisis was maybe officially acknowledged in September 2008. But of course it had been going on for years before then. It was just something where it became undeniable at that point. But I felt it was my responsibility having put together what I had seen to be like, you know what? It's a lot worse than people are saying it's not just like a single bank crisis. It's not even just a banking crisis. It's a central banking crisis. The problems go all the way to the bedrock of the financial system in terms of treasure ries being the new toxic waste. And it's going to be at least as bad as 2008 to probably worsen that. One thing I really want to, I want the audience to understand why I become so obsessed with this. And I've heard you say that the farther we get from the last deleveraging, the more incautious people become. And what I think people have, the, the subroutine that runs in the average Americans mind for sure is that this hasn't ever happened. Not realizing what they mean is hasn't happened in my lifetime. And they don't realize the hard truth, which is that every single empire and every reserve currency all throughout all of recorded history have all collapsed. They have all failed. They have all gone through this massive deleveraging. And deleveraging is a really polite way of saying everybody loses everything. But it is a, it is a bloodbath. It is often, as Ray Dalio talks about, it is often marked by blood, literal blood in the streets. This is when we go to war, everybody's freaking out. And so because it's been so long since we've had a big war on a global scale because nobody alive in the Western world anyway is aware of a massive deleveraging. They don't understand that A, they do happen. B, that they happen. When they happen fast. And see when they happen, it is catastrophic. And so I'm like, I don't want to be chicken little. I am super optimistic. But man, the more I started getting into financial content, the more I was like, whoa, there's something going on here. Ray Dalio says that every society, every empire goes through six stages. Stage six is absolute collapse. And for people that don't know Ray, he built the largest hedge fund in the world. So this is somebody that literally puts their own money at stake, much in the way that you have to say, hey, I think I know what's going on. He's been right so many times that he's built the largest hedge fund ever. And so what he's saying is, okay, there's six stages. Stage six is total collapse. P s the US is stage 5.5. So like that's not ideal. So as people hear you talk, the one thing you're a very metered guy, but the one thing I want people to understand about why I'm obsessed with this content is skies probably not falling today, at least that's my take, we'll get to the sort of how impossible it is to predict the timing a little bit later. But to really understand how these cycles happen and they are cycles, where we're at in the cycle so that you understand what to do. So if you don't mind, walk us through the the rapidity with which this stuff happens. Because I know that you have some slides that walk through like it was three days from when SVB collapses to when they're printing like that, the speed at which this stuff happens, I think is really important for people to understand. One other thing you might want to just kind of point out to your audience is like, you know, I am younger than Ray, but I've done some okay things in life. So you called out what was going to happen with COVID that it was going to be serious. Everybody said you're out of your mind. And you were like, well, the first people to call it. Yeah, and I think I also gave a pretty detailed projection of what would happen. And if you go and look at the, you know, the QTs on that, it's one of those things that feels like somebody who was treated like, I nailed everything to such an extent that it seems less remarkable today because of, you know, it was, it's almost like reading back history. There's like one thing I think I got wrong, which is like, you know, that full face masks would be more common for longer. But otherwise I think I played it out relatively well. I'm an angel investor. And so what I do is I look at long term trends and I'm very early on them. Early on genomics and robotics and AI. And most of the time you want to identify those things that have a lot of positive upside, right? But after COVID, COVID was the first time I was looking at someone like, I cannot, I cannot figure out a way that this isn't bad. You know what I mean? Like it was kind of like that. I just was looking at too many graphs, too many charts, and I'm like, you know, this is the first time I've seen something. You have to work back to that time, which is now several years ago. And I was like, this is the first time I've ever had a sinking feeling where it's like down into the right, you know? And that's mainly because I wasn't really looking at such graphs. I wasn't, I wasn't paying that much attention before the financial crisis. I was in academia at that time. I was just wasn't looking at markets or whatever. But I've got that kind of feeling again. Let me actually show the slides and maybe jump, go there, right? Perfect. This concept of the fiat crisis, right? One way of thinking about it is it's like, okay, how fast could, you know, things unwind, how fast do they start printing trillions? Well, it was two days from the collapse of Silicon Valley bank to the printing of $300 billion, even if they didn't call it printing. It was two weeks for $500 billion to move out of local banks to money market funds and to, you know, big banks and so on and so forth, for them to flee, right? It was two months to go from patient zero, the first patient being infected by COVID in the US to lockdown as January to March of 2020. It was two quarters from Bernanke declaring that it was a mild recession in April 2008 because the full-blown financial crisis being acknowledged in September 2008, okay? Finally, it was two years for the USSR to go from superpower in 1989 to total collapse and non-existence in 1991, okay? And so, you know, the lesson of that is that too slow is too late, right? That was, you know, two days, two weeks, two months, two quarters, two years, too slow is too late. And meaning if you don't react quickly, you're going to be too late. You're going to be the one left holding the bag to get smashed by the freight train. Well, yeah, and what does react mean? And the thing about it is, Paul Graham actually has a good saying, which is when something is exponential, it always feels like you're reacting too early. And the reason is because you don't have the normal social cues around you. It's like flying by instruments as opposed to flying by looking out the window, right? Looking out the window, you can see nothing is wrong, but instruments show actually beep, there's a big mount in front so you should pull up, right? And you have to essentially trust your instruments at that point because nobody is saying anything, everybody's calm. And that's like absolute reckoning as opposed to relative reckoning. And that's an unnatural way for humans to behave, especially when it comes to doing something atypical. You have to have the, you know, that's what being an angel investor is like, that's what being an investor is like. I mean, the whole point, of course, you've heard by low sell high, right? You know, why that's hard. It sounds. Oh, yeah. It's much harder than it sounds, right? Because, right, if you're buying low, you're going against a crowd. You're selling high. Again, you're going against a crowd buying low, you know, you're getting something whenever else thinks it's a bad idea. You're literally going opposite the crowd both times. So it's trivial when you look at a graph, oh, I bought here and I sold air, when you actually, if you could have VR that would project the emotions of the moment, and then you're hitting the buy button. And at that time, when, as I say, the time to buy is when there's blood in the streets or whatever, right?


The time to buy (10:12)

Or you, you know, you get greedy when others are fearful, fearful, fearful. If you get VR that capture the emotions of the moment and being very contrary to the crowd, it feels very different, you know? Anyway, so too slow, too late and many things are breaking. Okay. So there's the recent debt ceiling showdown that was a near miss, but the boosted uncertainty in US debt. It felt like the conversation was different this year. Did you feel like that as well? Very much so, and I reacted differently and moved my money differently. And yeah, it not only did it feel different when you look at the chart of how high debt ceiling is now compared to what it was last year, like it is a straight vertical line. It's crazy. Yes. That's right. And what's happened is basically like in a sense, you know, you can think of it as the more people can deficit spend and borrow without apparent consequence, the more they do so. It's as if you had a seemingly infinite credit card and there were no consequences for decades and you were like accelerating into the wall, right? Because it just feels like nothing is happening. Hey, we're such a superpower. We're so invincible. Even as the tide is going out. And as we'll get to like, you know, foreign affairs now agrees it's a multi polar world. China is like the number one car manufacturer out of nowhere. They're becoming a plane manufacturer. Like all of these graphs, a huge amounts of essentially the US's scope around the world is narrowing very quickly. And it's domestic scope. There's massive internal conflict. And yet its ambitions go to the sky even as state capacities falling through the floor. Does that make sense, right? So one thing I want to anchor people around and I want to know if you think this is true, that the collapse, the big collapse begins with debt. And if it, I think that the story that we're going to go through at least in the beginning part of the interview is really a story of debt. Do you agree with that? It is debt, but it's also, you know, it's several different shocks at the same time. So, you know, Dali actually talks about the, and I'm just citing him because I think he came to similar conclusions, but I actually have in some ways maybe a more hopeful take or some of different takes in terms of similar inputs here for now. So yeah, there's the economics where you have essentially sovereign debt crisis, not just brewing underway with lots of smaller countries already defaulting, but you know, the big ones you have to come potentially. So you also have massive internal political conflict in the US and you have massive external superpower conflict between the US and the Dragon Bear, you know, Russia, plus China. And you also have, you know, a couple other factors which are a huge, consequent decline in the US's soft power globally and domestically. So, you know, super majorities of Americans don't trust DC and abroad you have, you know, France, Brazil, Israel, even, you know, allies, right, that are trading in yuan or declaring strategic autonomy or, you know, Brazil is housing Iranian warships. And even Taiwan said it would shoot down, you know, US planes if they tried to bomb TSMC, right? And that was like a little tempest in a teapot, but it was clear that a lot of countries are kind of going their own way. Okay. And then finally, you've got the technological shocks where, you know, in a sense, you know, for like the ABCs of economic apocalypse for blue American particular are, you know, AI, Bitcoin and China. The sense that AI takes their jobs and Bitcoin takes their power over money and China takes potentially their military power because lots of the jobs, especially like, you know, the Northeast are lawyer, bureaucrat, doctor, they're like licensed jobs in some way where an AI might be able to do them better, faster, cheaper. And then finally, you have the uncentring of social media and that is, you know, what alone is done with Twitter, but it's also, you know, YouTube is following suit. They have reduced their level of censorship on certain things. And then you also have things like Noster and Farcast, which are decentralized social media. So that's like a digital glass nost to a company, Bitcoin's digital parastroika. Okay. Meaning when the Soviet Union collapsed, you had truly free speech, which was, you know, like a glass nost and you also had free markets, which is parastroika and we're having that in the West. So you have like a lot of different shocks hitting at the same time is not simply the economic shock. It's in the context of everything else. Does that make sense? So we have all these things colliding at the same time. It's what I'll call a rogue wave phenomenon. Yeah. And let me kind of just show, yeah, like a rogue wave, right? So, but let me show what all these things are. Right. So mentioned that's something was like a near miss that boosted uncertainty in US debt. There's an ongoing banking crisis. Most US banks are quote, technically near insolvency. Hundreds are already fully insolvent. Okay. That's, you know, a guy who disagrees on many other things, Guy Rubini, you know, is saying that there's a banking crisis at the time of, you know, in May, June of 2023, we've seen through the largest, through the four largest bank failures in the last two months, somebody, this guy Bianco, Jim Bianco, Bianco research coin determinants, not a bank run. It's a bank walk, right? Deposits are leaving banks regularly. They're not, they're not moving all at once digitally overnight. They're moving pretty fast. And they're moving to places with higher interest rates. They're moving out of regional banks, right? Hundreds of billions of dollars. And you know, when you start sending off the three of the largest four bank failures in the last few months, is that, is that the end of something? You know, it's funny, you know, somebody observed the reason the banking crisis is kind of operating in slow motion is we don't have, it's not like on a blockchain where you can see real time financials for everything in banks, you have to sort of wait for the quarterly reports. So it's a hurry up and wait kind of thing. So every quarterly report that people look at and they're like, oh my God, the losses are so big. And then, you know, they act on it, right? This is kind of a slow motion thing in some ways. I'm not saying there aren't things that happen in between quarterly reports. Sometimes there are, like obviously the bank run, but often quarterly reports kick off a whole new burst of activity. Moreover, it's not just, you know, these huge banks that have just failed, Stanford study reports there's $2.2 trillion in unrealized losses that many US banks face the same risk abroad to Encelokan Valley Bank. And fundamentally, what happened as we'll get to is the Fed and the Treasury, the Fed basically devalued Treasuries.


The end of the US financial system shift (17:31)

So the bedrock of the financial system, everybody who bought Treasuries, long term Treasuries in 2021 got completely destroyed in 2022. And some of those institutions started to collapse in 2023. And so the safest asset in the world became the riskiest asset in the world. We had a fair agreement in turn. This is an important idea. How did the government end up doing that? Let me give a few analogies first and then let me get more kind of technical or specific. Do you remember in 2008 when the banks sold AAA, mortgage-backed securities to each other, but they really weren't AAA? Mm-hmm. Right? So something where it was a combination of some of those guys relying themselves, some of them relying themselves like a light of others, the ratings agencies rely on. Like, everybody was kind of a combination of it's like self-interested delusion, right? Where, you know, oh my God, are you saying that these mortgages aren't real? That would mean a housing crash. I mean, all these people are going to lose their homes. That's anti-American, right? That was the tone in '06, '07. What are you saying? The housing market doesn't always go up? You're crazy, right? You're a doomer. And you have to work back to that period of time, but that is one of the reasons why this is allowed to go on for so long, the housing crash is why it was able to get so bad is because people thought, well, real estate's the safe investment. It's always going to go up. When is that ever going to go down? The government is backing it, et cetera, et cetera. And the AAA ratings on mortgages are, or not much to them, sell the mortgage-backed securities as part of what allowed the crisis to get so bad. And one of the issues was the rating agencies were not able to downrate those things. For a variety of reasons, one is that they're paid by the, you know, the guys who they're rating, okay? But the second, so that's a private issue. But the second is later, for example, in 2011 when S&P actually downgraded US debt from AAA, do you know what happens to them? No. Nothing? They got a case from the US government. And I believe, like a senior official there, this guy, you know, Sharma had to step down. The experiment did not like S&P downgrading the debt. And I'm pretty sure that, you know, the government would not have liked the ratings agencies downgrading the mortgage-backed securities either in the month of 2008 because a bipartisan thing by both Bush and Clinton was to get people into homes, okay? MIT has this article like, you know, the Bush drive for homeownership fueled the housing bubble. And then there's another one which was how the Clinton era roots of the financial crisis, okay, in the Wall Street Journal. So if you have sometimes binocular vision where you take the New York Times attacking Republicans in the Wall Street Journal attacking Democrats, you put it together and you're like, oh, that was a bipartisan government-caused housing crash. Did you know that part? No. Okay, that's actually pretty important, right? It's important what follows because there's a bunch of movies that have been made on the housing crisis. And some of them are good movies. There's the big short which talks about, you know, the outsiders and they're seeing the problems. There is too big to fail, which talks about like the government's vantage point on it. There's margin call, which talks about the bank's vantage point on it. There's inside job which sort of like the activist point on it, which is calling for more regulation. But what there really hasn't been, at least to my knowledge, is one that shows the extent to which government policy pushed banks to, you know, again, in the words of both the Times and the Journal to, because they wanted to get people into houses, because they wanted affordable housing goals, ending redlining and so on and so forth, both the Journal and the Times repuglishing the truth on this around that time in the early 2010s. So the government was nudging, pushing banks and if you didn't, if you didn't go and, you know, extend all these mortgages to people who probably couldn't pay, well, often you got acquired by a bank that did and that would kind of, you know, override your decision making anyway. So hold on, I think it's important to understand why they're doing that.


George W. Bush and Financial Crisis (21:51)

So are these ESG style goals where there's like a moral imperative that's driving it? That's exactly right. You know, for example, here's a quote, December 21st, 2008, again, when the New York Times had an incentive to attack Bush over this, they said, "Bush drive for home ownership fuel housing bubble." We can put light where there's darkness and hope where there's despondency and part of it is working together as a nation to encourage folks to own their own home. George Ollie Bush, October 15, 2002, right? So that is the approach which says, "Oh, we de-rectulated the market and, you know, push people and so on and so forth." You can reboot your life, your health, even your career, anything you want. All you need is discipline. I can teach you the tactics that I learned while growing a billion-dollar business that will allow you to see your goals through. Whether you want better health, stronger relationships, a more successful career, any of that is possible with the mindset and business programs and impact theory university. Join the thousands of students who have already accomplished amazing things. Tap now for a free trial and get started today. There's some truth to the idea that they pushed lending standards to be low, but that's not exactly the same as deregulation. They actually used regulations to push banks to hit certain, whether you call them, formal or informal quotas they were doing that. Then the other side of it is the Clinton-era roots of the financial crisis in, you know, Wall Street Journal article in 2013. And that says, "Affordable housing goals established in the 1990s led to a massive increase in risky subprime mortgages." And, you know, there's a strong case. The answer is going to be traced to September 12, 1992 on that day presidential candidate Bill Clinton proposed using private pension funds to invest in government priorities, such as affordable housing, sharing long-term, broad-based economic benefits. And to the point is, if you add up these two articles, again, you start getting binocular vision. If you hear that saying, like, you know, there's the stupid party and the evil party, and sometimes it gets to get to get to do something bipartisan, and that's stupid to put an evil. Have you heard that? Nice. It's lovely. It's good, right? So one thing I don't want to get lost in all this, I really want people to understand why this stuff is happening. So this is maybe you and I don't agree on this, but I am formulating a hypothesis the more that I get into this, that the following is what's happening. And this is actually me synthesizing you and Dalia and a few other people like Raoul Paul. So what ends up happening, my thesis goes, and please strike this down where you think I'm wrong, is that you become the reserve currency, you now have the ability to print money to cover up problems that begins to change the way that people perceive money, even at the governmental level.


Why money is failing (24:25)

So now all of a sudden, people start trading what works in a free market sense of working that you spend a dollar you get to in return. It exchanges that for I think morally we ought to do this thing. We do it. It's not working, meaning that we're losing money. So you get the 2008 crisis, but they're like, what crisis? We're just going to paper over it. We're going to print money. It was bad, but it wasn't fall off a cliff bad. And so they print over that and they go, oh, look, see, that wasn't that bad and we were doing something good. We're trying to be moral actors because to be honest, like this was the big awakening that I went through. I'm like, this sounds awesome. I love that you're ending redlining. You're getting people onto the housing ladder that previously weren't like it all sounds amazing. But then Thomas soul comes along and he gives me this idea that then you start watching play out, which is the last 30 years have been marked by exchanging what worked for what sounds good. Now when you tie that to debt, because again, my whole thesis is that the collapse begins with debt because if you don't have debt, you can get away with some of this. But the problem is you end up getting into the moment that we're in now, which is why you talk about all these problems happening at the same time.


The Endgame (25:42)

The reason I think this becomes a that you're potentially about to walk off a cliff is because you have all this debt. The government has a full GDP in debt. US households have full GDP in debt. Corporations have full GDP in debt. And so now all of a sudden, the only way out of that debt is to either lower your interest rates, which if you do that, then you're going to have inflation to print money to cover some of your debts, which again, inflation. And so if you have to print and you can't lower rates anymore, now you're in trouble. So they start raising rates. The problem is everybody's got all this massive, massive debt. And this is where editors put back up that the debt ceiling picture where we see this huge spike in the last year, where it is just mohussive. The amount of extra debt that we have right now is not a little. It is it is unbelievable. It's like 400% more than normal. It's just absolutely astronomical. So you have this massive amount of debt. You can no longer lower interest rates. In fact, you have to start raising interest rates. The Fed gets everybody again. This is me quoting you. The Fed gets everybody to buy into the bonds, treasuries, like, hey, rates are going to be low for the foreseeable future. All is good. And then whatever six months later, they take them to the moon, the fastest rate kite in in history or certainly recent memory. And so now people like, whoa, whoa, whoa, all these bonds that I just bought, they're now toxic. I can't get them off. SVB fails. Everybody's blaming them as if they did something crazy. They put all their money in like the supposed safe asset. And so now you're in this game of like the only solution left is to print because you can't lower interest rates because if you, you can't lower interest rates because of inflation, you can't raise interest rates because you will break the economy and more people aren't going to be able to pay their debts, including the government itself. And so now you're in a conundrum where all of your tools are gone except printing money. And so the question that I'll ask you point blank is we've printed a lot of money and nothing bad has happened. So why now? Why is it a problem now? In short, like the system is starting to creak and you're starting to see what I call consumer failures, like in the sense of in 2008, you know, when you went to your ATM or something, that didn't, that just continued to work. The failures didn't were like enterprise failures in the sense that there were guys who were sweating in skyscrapers with a piece of paper back and forth that weren't where they, what they thought they were. Now you're having banks blow up on, on mainstream, you are having it is becoming much harder to cover things up. So we just talked about the fact that all these banks blow up, the fact that there was this nearness in the debt scene, we've got people talking about debt again, the fact that there's 2.2 trillion unrealized losses according to the Stanford study and I'll come back to what those are. But we have commercial real estate crisis due to remote work, due to all the crime in blue cities and so on, commercial real estate prices could crash 40% from their peak in a worse disaster than the financial crisis, Morgan C. Ann Lee, that alone is pretty bad. 2022 was the worst year for bonds, evidently in recorded history. So it's a bond crisis, not just a bank crisis and everybody buys bonds as we'll come back to that. That's the core of a lot of this. And bonds are seen as a safe haven, but now they're actually central to this crisis. It's not like a crisis caused by governments, just like 2008, but even more directly. Insurance, remember, yeah, a G when they went down in 2008, the guys who were supposed to back up everybody. So today insurers also bought a lot of bonds and double digit percentage of their portfolio, which are supposed to be safe, are held in now essentially these unsafe assets that have been devalued in a big way. Isn't it like 70% of their portfolio? Yeah, exactly. There's a graph here. Life insurers have like 70%. And you can go to other kinds of insurers. And I think in his life insurance, you might say, oh, well, that's different than real insurers. There's actually been a collapse in life expectancy in the US like this overnight, huge collapse. So life insurers are paying out way more than they expected. And so lots of insurers are just getting, they have to pay when they didn't think they were going to have to pay. Okay, there's insurance crisis.


Auto Loans (30:13)

There's a fiscal crisis, 1.4 trillion unfunded pensions. There's auto loans spiking defaults in that trillion dollar plus sector. Student loans payments may resume 1.8 trillion in debt after this multi-year holiday due to COVID. And it's almost like the worst, right? If you just kept it or you'd forgiven it, right, both of those would have been better than suspending it for three years and then resuming it because now what's happened is people didn't sock away the cash for a rainy day, right? They didn't use it to pay down the debt. They just expanded their spending. And now suddenly it may then probably gamble that the student loans would go away forever, right? Because it got suspended. Now they're coming back and they're like, "Oh no." And now they've got it on top of their rent payment or something like that. So that's going to be another example. Let's use this as an example. So why then don't we just forgive that debt? Oh, I mean, well, first that's a huge tug of war between two groups. When you have one man's assets and a man's liability, you are marking down a trillion dollars in someone else's books and they will fight to the nail to stop that from happening, right? And so it's a zero-sum game. If you have the debt, you want it to be marked down. If you're the lender, you don't because that's your revenue stream, right? That's how maybe if you're a college, that's how you pay your administrators or whatever, right? But then why doesn't the US government just pay that debt? Well it could. And if it does do that, then it's just printed a giant amount of money. And then people say, "Why don't you print my mortgage as well, not just my student loan debt. Why don't you print my car loan away?" And once you've kind of broken the seal on that, that's like the people's QE, the people's quantitative easing, where the money is printed not just to bailout banks, but to bailout everybody. And you know what? Like at first, some people will love that. But that much introduction of money into the system starts actually devouring the currency itself.


The Ukraine Crisis (32:20)

So talk about the student loans. There's credit card debt, almost a trillion dollars credit card debt, record high, okay? There is, and there's yet more, right? Globally there's Ukraine, the Ukraine crisis, that's like at least a hundred billion in, it's like a hundred billion in direct costs for just the arms, but that understates it. It's easily a trillion in direct. A loan paid like 800 billion in energy costs. It's like a multi-trillion dollar war. You know, people say wars cost blood and treasure. I mean, just think about it, like you've seen obviously these bombs blowing up things in Ukraine or what have you. Think about how expensive building is, right? It's like somebody's in tax life to pay for like a house, you know, 30 year mortgage or whatever. Now you have a bomb that blows up like a thousand person apartment building. That's like a thousand economic lives wrecked, right? Even if the people didn't get blown up, it's like a thousand healthy working, you know, people's 10 years of their life forever is consumed at current very high housing prices. So when the whole cities are leveled and stuff like that, that's a lot of damage, right? And that's just within the country obviously outside the energy crisis is tremendous and of course the humanitarian crisis is tremendous. You also have, so you know, the Ukraine crisis, you have the energy crisis in Europe and some people are like, oh, well, price are down. Synergy crisis is over. It's like, well, what was the cost of that, right? You had demand destruction. You had businesses that shut down because they couldn't afford the energy costs and then they stopped consuming energy and maybe, you know, that's why energy prices are down because they're not consuming. You know, the level of demand destruction that probably happened in Q4 of last year, you need to see stats on it. Q4 of 22.2.


Dedolarization (34:10)

Then de-dolarization, this guy, Stephen Jen, who's not like, he's not like a zero hedge guy, he says de-dolarization is happening at a stunning pace and people did not account for exchange rates and so on. He's like by his calculations, you know, the dollar was down like, you know, in terms of its share of assets, but held by other countries like 19% last year and everything else is up. You know, Southeast Asia, all those countries, the 10 countries are using their own currency for trade. Indonesia president said that Central Asia, the ACU, they met base and they wanted de-dolarize. You have, you know, South America, Latin America, Brazil saying they're using the Yuan. In France, they want to use the Yuan. You have Iraq in the Middle East trading oil for Yuan. You have Russia trading oil for Yuan. And you have Israel even holding Yuan. And you know, that's a lot of countries. That's a lot of the world right there, you know. And so de-dolarization, if the dollar is no longer have to be used in an obligate way, right? If it's no longer, you know, it's only a good thing that you have to use. If you have options, then that means you've got another rail to go on. And one thing I should make clear by the way is I don't think, this is where I differ from dollar, you actually notice. It really thinks the dollar just gets replaced by China. That's a clean kind of US China replacement. I actually think that de-dolarization is decentralization.


System of Control (35:39)

So the kind of clean statement is, money is a store value, minimum exchange, unit of account. And sometimes, in the cryptocurrency, you might also include like a system of control and like a financial system. Okay? So the store value that, you know, from treasuries or, you know, just holding the dollar itself, you may go to gold, central banks are buying record amounts of gold, or you may go to Bitcoin, or you may go to other cryptocurrencies, or you may go to foreign fiat. So medium exchange, you may use foreign fiat currencies, the yuan, you may use the repeat, you may use local currencies, you may use cryptocurrencies in roughly that order, I think. So, you know, in terms of unit of account, that may remain the dollar for a while, but that's like the last thing to flip. You know, basically, you can just look up an exchange rate, you know, and flip that. That's the easiest one. System of control is the most important in some ways. It's not normally listed. This is due to Andreas Hans-Nopp, plus he came up with this concept. But system of control is who has root access over the currency you're using. You know, this was not necessarily quite an explicit concept in the past, but today it's very explicit is the Fed can literally hit a button in free use accounts, just like they did to the Canadian truckers, just like they did to Russian assets, you know, the Candice Bank, you know, banking system to debt. And so system of control, you know, the Chinese Yuan, the Indian repeat Bitcoin and Ethereum, those are outside the ability of the US financial system to shut down with one click. Okay. Then there is the financial system. And I think that's the Yuan and the repeat for the domestic economies that's maybe, you know, in the Middle East, AED to buy its currency is still pegged to the dollar, maybe it gets unpagged. You know, there's a Singapore dollar. And then of course there's Ethereum in the global financial system that's built on crypto. So you have essentially both what I call land and cloud competitors to the dollar, land being, you know, the sort of bricks and especially China, you know, currency and then cloud being cryptocurrencies, right? And so once you start enumerating all of those, then you add on top of that, there's a huge development since 2008, which is there's lots and lots of FinTech and crypto people around the world. Okay. And if you go to other countries, often their payment systems are more advanced than in the US, for example, like we chat in China or UPI in India or, you know, even like, you know, grab pay in Southeast Asia or, you know, packs to grow in Brazil and stuff like, you know, it's not that hard now to stand up a FinTech or crypto company, right? And by contrast, you have ACH and so on within the US where it's like slower wire times, what have you, you know what I'm talking about? Right? Like how payment technology is relatively lagging in the US? Yeah. As soon as you get into crypto, you realize real fast how slow the legacy system is. So the point is that the only thing the US financial system is going for it is its legacy traction. It's not technologically superior. It is not something which you choose from scratch because the US is no longer a major exporter of physical goods relative to China, China's world's number one trade partner. It's not something that either your engineer in the US should pick or your conservative in the US would pick or your much of the world would pick, right? So it's an incumbent that has incumbent advantages, but if it had to be adopted from scratch today, it's not clear that it would be adopted in that way. Does that make sense, right? So that's important that the rest of the world, it's much easier to launch currencies than to scale factories. I've done both. Okay. It's not trivial to launch currency, but it's digital. Basically China is the number one trade partner for most of the world, right? Yeah, I think that's shocking to the average listener. They have no idea that's true. See, here's the graph, right? Like essentially, here's the US and the year 2000. Here is China's trade and raising. This is what it's amazing, right? And so the thing is that's only accelerated for the last three years, right? In a sense, of course, that's really terrifying. This is where I feel like people aren't seeing how all these things are adding up. In fact, I wrote down what I think your thesis is because I'm, again, I don't quite know if we fully agree. So it's like you've got, okay, there's all the problems that we just went through, all the debt, all that stuff. Plus, the lack of financial innovation on behalf of the US is leading to this moment where we are now weak to contenders. And the most obvious contender is China. How close am I getting to the stack of problems or the stack of issues that you think are creating what I referred to earlier is the rogue wave that seems prone to be the mark of the end of the US empire?


When Empire Falls, Its Non Tech (40:37)

I think the lack of financial innovation is certainly a factor, but it's really, I mean, the physical world is made abroad, right? Like if you have to choose, as I showed that graph, countries don't want to choose, but they have to choose. China makes your chairs and your screws, right? People think the competition with China is like a high-tech military competition. In large part, it's a low-tech economic competition. China will screw you on the screws, right? They will literally just withhold the nuts, bolt screws, and so on. You can't make things, right? More terrifyingly during COVID, the medication and PPE. Masks and so on. Yep. That's right. In fact, actually there was, there was aid, airlifted, it wasn't made public or it was made public, but wasn't emphasized. It came from China to the US, so August 6, 2020, Rolling Stone, the unraveling of America, and essentially here's this thing he says. Basically, for the first time, the international community felt compelled to send disaster relief to Washington. For more than two centuries reported the Irish times, the United States has stirred a very wide range of feelings in the rest of the world, love and hatred, fear and hope, envy and contempt on anger. But as there's one emotion that's never been directed towards the US until now, which is pity. As American doctors and nurses eagerly awaited emergency airlifts of basic supplies from China, the hinge of history opened to the Asian century, okay? That's oof, right? Now the thing about it is I actually somewhat disagree with the quote in the sense of, this is actually, I'd say it's not for more than two centuries, it's really about US world dominance actually relatively recent. It's not like an eternal fact. There's this book by Stephen Wertheim, which is good, which is called Tomorrow the World, the birth of US global supremacy. Okay, I'll just call that. Do you mark that after World War II? Well, it's actually in the lead-up run up to World War II, and the thing is, I mean, this is sort of obvious, but you don't become number one by accident, right? It's kind of like deciding to do a startup, right? You don't become Google by accident. It's really hard to become Google. You have to just set out to become Google. It's a very difficult process, and even those who set out to it don't come in. The reason I say that is a lot of people just sort of think, oh, you know, the US kind of just fell into this role, and it didn't, you know, I never wanted to be totally world dominant with embassies in every country and military base everywhere, and a financial system everywhere, and regulations after everywhere. No, there were people in Washington, D.C., who had a court plan for world domination, just like the Soviets did. And the difference is that I think that from 1945 to '91, the American version was better than the Soviet version, and why is that? It's because, you know, if you look at West Germany versus East Germany, West Germany is better off. South Korea versus North Korea, South Korea is better off. You look at, you know, the Taiwan and Hong Kong, which are, you know, capitalist and the PRC that was communist for most of the Cold War, and the Western aligned countries were better off. And so just looked at it in terms of that neutral ground, the American system, with its flaws from 1945 to 1991, was better than the Soviet system. If it was world domination, it was relatively benevolent world domination. What I think happened after 1991 is without the Soviet check, you know, as bad as the Soviets were, and it's good that, you know, that is on the Ashish history in Eastern Europe is free, and, you know, India is going on capitalist, and all that is generally good, even though it was tough for a lot of the former Soviets. What happened is the, you know, over time, first of the US just helped Eastern Europe get back on its fate, and it was occupied and making sure that the Soviet Union didn't totally blow up. Do you know, for example, that, or the post-Sovietism's blow up, do you know that the, they shelled the Russian White House in 1993? Do you know about that? No. Yeah. The, like, you heard a lot about Tiananmen in '89. We didn't hear about 1993, and Yeltsin ordering, like, the Russian White House to be shelled the tanks, even though that's more of a, like, you know, Russia was, at least within the Western camp, ish at that time, ostensibly, it's like a, it's a new democracy and so on and so forth. You've never heard about that. Most people have not heard about that. But basically, the post-Soviet era was a huge mess, and the US to its credit, like, essentially supervised that mess, and it's revealed later that, you know, the US was backing Yeltsin. It wasn't, like, a completely organic thing that Yeltsin, you know, became pre-misentropares. Of course, you know, CIA, all these guys have an interest in loose nukes, not making their way around. So the US was all over that situation. It's almost like, you're seeing a waiter that catch a bunch of balls that have fallen, you know, down from the air, like, it's like a bunch of plates going there to go through the, go look at this and catch them, you know? Yeah. In the early 90s, I think the US overall was doing a decent job, not a great job in some ways, it's on foreign policy. Eastern Europe is way better off than it was. Estonia is way better off than it was. I'm not somebody who's just like, oh, the US is always evil and so and so forth, not at all, in fact. I think the US has actually done a lot of amazing things. What started to happen in my view towards the end of the 90s, and then especially in the 2000s, is you start to get that Messianic crusading Neocon/SamanthaPower/Responsibility to protect kind of thing, arguably starting with Kosovo and then going into, you know, like Iraq and all the Middle Eastern forever wars and then onto the present day where, you know, we've got- Why is this bad? Well, why is this bad?


Why is this bad? (46:48)

Good question. The reason it's bad is that wars are never clean, you know? They're always sold to the public on this clean line of like, here's the bad guy, here's a good guy. And they're very, very, very clean. Like even in World War II, you're talking about like the firebombing of Dresden, you're talking about the nuking of Hiroshima, you're talking about lots of civilians and innocence killed, right? And many other wars are much more great than that. A. B is like in general, war should be a last resort, absolute, absolute last resort. And usually you want to solve things with economics or some kind of political solution or something like that. And the reason it was bad in the late '90s is it's just unchecked power. You know, actually, this is one way of thinking about it. If power corrupts, absolute power corrupts, absolutely. Have you heard that before? So basically, you know, especially like Iraq has something I think we can have consensus on. A country is totally blown up, totally false premises. $8 trillion was based on these Middle Eastern wars. Huge part of the debt, by the way. Iraq, Afghanistan, and so on. ISIS formed in the aftermath of that. All these countries in the least were destabilized. And for what? Like there's no accountability. A lot of the same people are still empowered. All those nyokons are still, you know, advisers are saying, now what were the Ukraine? It's totally memoryless. It's like a sociopathic serial killer at this point, right? And at best, you'll get what we meant well, and then move on. Why do you bring that up? You know? And why are you drawing on the past? Okay. Well, I mean, we're going back to 1619, but we can't go back to 2003, right? Like, you know, people will selectively excavate aspects of history and use them as a weapon in, you know, like the current events. But they won't do the things that, you know, in your times was responsible for printing this false intelligence. But they want to go back 400 years to notch their own faults, right? So like if you notice, like from 1945 to 1991, again, like you can't defend everything that you were sworn policy did during that period, people will say, oh, they're right wing gets squads and so on. Probably they were, but you know what?


Understanding International Monetary Fund And Inflation

In 1971, the US failed to play along with IMF rules that the rest of the world was following (49:12)

They were left winged out squads, the communists killed 100 million people. And they didn't play nice, you know, like the Vinoza de Cribs have shown that, a joint that is V-E-N-O-N-A. Have you heard that before? No, not once. Okay, the Vinoza showed that basically the Soviet Union had riddled the United States with Soviet spies. In fact, you read Sean MacMeacon's book Staland's War and it makes a point that like, you know, this is not very well known about like World War II. You know, one of the number one, first of all, he makes a point that World War II was actually not Hitler's war, but Staland's war because Stalin was actually on two fronts. He had both an Asian front and a European front. And the second thing is, you know, the least just to digress in this for a second. You know, the least covered, but perhaps most important, theater in World War II? No. It's the Japanese Soviet. Okay. I don't know. Why did you literally know nothing about that collision? All right, so isn't that interesting? Obviously, you know about the Pacific war between the US and the Japanese. You know a lot about probably the European conflict between Germany and Russia and Germany and the US, UK, France. But isn't that interesting? And you know about like Germany, you know, versus Russia and Russia and the South, on the ground and whatever. But why didn't Japan and Russia fight? Because Vladivossack is there. Russia has a huge, you know, Asian front. Why didn't Japan invade from the east when Germany is invaded for the west? Why did they not pincer attack? Right? Why did it happen in a reverse? And it turns out that actually getting Japan to fight the USA was in Sean McMeekin's report and in a lot of documents that got declassified. Getting Japan to fight the USA was like one of the number one goals of Soviet foreign policy. Do you know that? I did not. Yeah. So the reason is it goes all the way back, you know, 1905, you can push back in for the bill. 1905, the Japanese just digress on this. Japanese beat the Russians in the rest of Japanese war. In 1905. This was the first time a non-white power had beaten a quote European, you know, ancestry country in a war. This had huge influence in terms of anti-colonialist movements around the world. And in fact, at the time, the Japanese positioned themselves, you know, as friends of W.B. De Bois and African American movement in the US, like what would later be called civil rights movement. That's it. Over a lot, most people don't know that. There are Indians who are sympathetic to the Japanese because, you know, it's like, oh, wow, non-white people can be free or whatever, right? Of course, you know, Japanese were, you know, like the terrible war crimes later. That's an aspect of history that people don't know about. Point is that after that, after 1905, that was a huge, you know, like Black eye for the Russian Empire. And they took the Japanese seriously, culturally after that.


History of Soviet Meddling in Elections (52:08)

And even after the communist revolution, even if the ideology changed dramatically from Saar's own to communism, you know, it didn't change? The geography, right? The territory is still abutting Japan, right? And so they still had geopolitical rivalry with Japan. They couldn't swap that part out, right? And they couldn't, you know, their attempts to make Japan communist, but, you know, didn't succeed. And so, so essentially for years and years and years, Soviet foreign policy was focused on how do we get these other capitalist countries, that's how they thought of it, like the, how do we get these capitalist countries to fight amongst each other? And so, you know, there's guys like Harry Dexter White, there were Soviet spies in the US and they helped turn Japan against the US and vice versa. Not saying that anybody here was like a good guy, okay? This goes to an idea of their second, third, fourth, fifth order consequences to things. And when you have a lot of things happening at once, especially on a geopolitical stage, this all plays into why in this unique moment we are standing so close to the precipice and why people aren't hearing you that we're standing this close. So I want to, I want to re-anchor everybody around. This interview is born out of, you spend a million dollars to get people to understand why we're printing so much money. That's so crazy. Like, there's no way that people understand that you're the only person I can conceive of that would ever do this. I mean, it just, it struck me as so bizarre when you first brought everybody's attention to this, you were going to pay the million dollars to get attention. I'm obsessed with getting people to say like what their thing is in a single sentence. Here's in single sentence. Yeah. If in 2008 it was a banking crisis in a mortgage crisis, in 23 and 3 it's a central banking crisis and a currency crisis. Now, the question becomes why? Why do these, one, why is it a central banking crisis? And why then does it potentially mushroom into something bigger?


Inflation is the Key Ingredient (54:18)

We are now in an inflationary environment that had been denied that inflation was going to happen for a decade due to inflation because people have quote printed money from 2008 to 2020 and the only effect seemed to be on asset prices and home prices and all the things in financial markets. But in the physical world you had deflation partly due to tech bringing down prices, like electronics became cheaper and so on. And so people thought if you go back to early 2021 that inflation's a quote right-wing conspiracy theory or it's not going to happen, it hasn't happened for 12 years, you're so stupid for bringing it up. And there's all these articles about that. And so over the course of 2021 their first saying inflation is going to happen so more stimulus is good and the approval of inflation can happen. They're saying, oh maybe it's transfer inflation but they're still selling hundreds of billions of dollars in bonds during this period. And then suddenly in, you know, as late as November 2021 they're still saying transfer inflation. In December 2021 after Powell is three nominated in November 22nd, 2021 they start hiking interest rates very rapidly. And everybody who was gone. Was that deceit? I think it was deceit.


More incriminating testimony. (55:42)

I've got actually an article on this called Too Fake to Tell, which basically makes the case that Powell was aware at least at one point that, so let me get an analogy here because it's a very technical sounding space. And when you explain all this, you know that meme where the guy's pointing at the corkboard and you know, there's all the lines connected to everything else and you look like the crazy guy. Yeah, exactly. The thing is the financial system is set up to be intentionally opaque. If you are the Fed and you're saying, hey guys, buy long duration bonds which will lock you into an interest rate, rates are going to be low forever. So just take what you can get now, take it out 10 years, whatever. All is going to be well, we don't have any intention of raising the interest rates. But you actually do plan to raise interest rates. So then the problem is people put all their money into an asset that you are about to tank by raising the interest rates. So they effectively get you to buy. No, I don't know. I don't understand this well enough to say whether they did it on purpose or if this is just one of those things that's too hard to predict, I don't know. But that was the effect. Hey guys, buy these bonds, buy them long, not going to increase the interest rates anytime soon. And then people go buy them billions of dollars worth of them and then they raise the interest rates. And so now the value of those bonds tank, now your money is locked because when you bought them, just so people understand how those works, when they bought the bonds, they thought they'd be able to sell them. So they didn't think, oh, I'm going to be stuck with this for 10 years. That's the time to maturity. But they thought that they would be able to sell them that the market would still be good because interest rates were going to stay low. So it all hinges on this question, did he know, did the Fed know they were going to raise rates because if they knew they were going to raise rates and they got the banks to buy in, now you've got a problem. And I've heard you say the phrase, the Fed lied and banks died. Now that that's sinister. If they knew they were going to raise the rates, that's really gnarly. Can you see the screen there? On page 193 of these minutes, okay, the Federal Reserve minutes here. And I think we were a point of encouraging risk-taking. Meanwhile we look like we are blowing a fixed income duration bubble right across the credit spectrum that will result in big losses when rates come up down the road. You can almost say that is our strategy, okay? So at least 10 years ago, he was aware that, how could you not be aware in his position? But that if you sold a ton of bonds and then high rates very, very, very rapidly, that you would devalue everything you just sold. Like the bond market is complicated. So I came up with an analogy to kind of explain this, right? Imagine Apple told Best Buy and Target and Walmart that it was only going to be selling iPhone 10s for the foreseeable future, okay? And so it sold them billions and billions and billions of dollars worth of iPhone 10s. And it said we're not going to be selling better iPhones for a long time, buy these, buy them in bulk and so on and so forth, okay? Then after Apple sells all those billions of dollars in inventory, suddenly it turns around and launches the iPhone 11, a better phone. And thereby devalues everything it just sold by at least 10 or 20%. And even though it's maybe a small depreciation, it's across such a huge amount of inventory that Best Buy and Target, Walmart, take massive losses. And some of these are low margin businesses. So it's like a huge, huge hit to them. And the thing is that, you know, whether Apple knew that it was going to launch the iPhone 11, which it probably did, or even if it didn't know, either way, at the time it sold those old iPhones, it was telling the buyers it's not going to launch a better model for a long time. Make sense, right? So had Apple done that, had it committed to not launching a new phone and dumped a bunch of older phone inventory on buyers. And then suddenly devalued all that, you know, the buyers would have a case, they'd call that fraud, right? Apple would have sold those assets on false representations regardless of whether they knew at the time that they were going to launch the iPhone 11. And frankly, how could they have not? Okay. But, you know, if they just changed their minds, the commitment they gave to the guys who bought it at the time that they were selling it was, "We're not going to launch a new phone for a long time, so feel free to buy tons of these that are our best model." Okay. Does that make sense? You know? And that's something that people can get their heads around. Okay. As a bond buyer, you have the same thing. You think, "Okay, do I want to buy at today's interest rate or do I want to wait?" I mean, the interest rate will be higher and I'd buy tomorrow, especially because if I buy a bond today, it gets depreciated if the interest rate is like tomorrow. The treasury and the Fed are different entities. Treasury is selling the bonds and then Fed is effectively setting the price of the bonds by setting interest rates. If they're thinking there's a unitary entity in the US government, because they do act together in most cases, then it's like the US government sold all of these banks hundreds of billions of dollars in assets that have then devalued. One of the things that I find interesting is that value investing is really broken down for what, like at least the last five years, which leads to the question, "What the hell is going on?" And that's what we're really dancing with here is the complexity of this problem, but there are so many signals that something's going on from all the things we listed. I just want to recap some of the things we listed in the beginning here. So you've got debt ceiling is way up, markets estimating a record high probability of US sovereign default. Most US banks are near insolvency or already technically insolvent. Three of the four largest bank failures in US history have happened in the last two months. Two point two trillion dollars in losses at banks have yet to be reconciled. Morgan Stanley believes that the commercial real estate sector is poised to be a worse disaster than the 2008 financial crisis. 2022 was the worst year for bonds in a long time. D-dollarization, which you went through in detail is happening. Sovereign defaults are at an all time high. We had 14 in the last three years versus 19 in the previous 20 years. That's 4.7 per year now versus less than one per year previously. It's an increase of almost 5x. We have millionaire migration to the US has dropped by 86% in the last three years and central banks are buying a ton of gold. A ton of gold, the chart is ridiculous, presumably because they see that something is coming. So it's like, okay, you are the actual one that you know. You got a lot. You missed a few. I cut out like 10. Yeah, so there's an insurance crisis. There's the fiscal crisis, blue states are bankrupt like California, Illinois places like that. They're losing a lot of it. There's auto loans. There's student loans. There's credit cards. Each of these are like trillion dollar problems that could crash the economy and they're all happening essentially at the same time. It is insane. So I feel like we're standing on this really rickety thing.


Why this isn't being solved. (01:03:01)

You said that the economy is beginning to creak. But I've heard you use an example before that I worry is more accurate. Now remember, all I care about. I want people to look at this. Neither of us have a crystal ball. The one thing we are guaranteed to get wrong is timing. I just want everyone to be very clear. Now the wins and losses all come around timing. So of course, like if I had a crystal ball, just shut the show down and just go make a lot of money. So I have no idea when this is going to happen. So to be very clear. But you've used an example before that I think is absolutely brilliant. And that is this is a wily coyote moment. Yes. What do you mean by that? So wily coyote, if people haven't seen you can probably put up an image of it. This character from Looney Tunes. And they walk off the cliff and they're just merrily going in mid-air. The one day they look down and they're like, oh my goodness. And they mark down is digital in a sense. They just fall all the way straight down. And if you look at the graphs of some of these bank stocks, they're kind of like that. Where they're analog and they're just kind of floating through the air. And then suddenly somebody actually looks at the financials, they look down and they're just digitally dying overnight. That analogy is so apt because, and this is why I never know how to handle these moments. Because by talking about it, you are getting people to look down. And so in some ways you run the risk of speeding it up. So you talked earlier about Janet Yellen. She knew there was a problem, but she didn't speak up. Now you've, for people just listening, he just made a face. So we're going to get to the face in a second. But like you've got Janet Yellen who knows there's a problem but doesn't broadcast the problem. But I don't know if I'm mad at her for not broadcasting the problem, but at the same time, I can't help myself out of a moral sense of obligation from telling people, hey, you might want to look down.


Why we can't ignore the problem. (01:04:42)

What's up guys? It's Tom Billieu. And if you're anything like me, you're always looking for ways to level up your mindset, your business and your life in general. That's exactly why I started Impact Theory, a podcast that brings together the world's most successful and inspiring people to share their stories and most importantly strategies for success. And now it's easier than ever to listen to Impact Theory on Amazon Music. Whether you're on to go or chilling at home, you can simply open up the Amazon Music app and search for Impact Theory with Tom Billieu to start listening right away. If you really want to take things to the next level, just ask Alexa. Hey Alexa, play Impact Theory with Tom Billieu on Amazon Music. And boom, you're instantly plugged into the latest and greatest conversations on mindset, hell, finances and entrepreneurship. Get inspired, get motivated and be legendary with Impact Theory on Amazon Music. Let's do this. Right to make the face. Well, the reason is that line of argument that talking about it is causing it is actually people throw that around. I think it's false, but it's false in an important and interesting way, which is when one of the things I've found that I think a stupid kind of meme is you talk about this type of stuff, people will be like, "Oh, you're such a doomer. You're such a downer. Just look on the bright side, man. Blah, blah, blah, that kind of thing." And the goal is to be neither a pessimist nor an optimist, but to be just a realist. And if you're a realist, then you're not a Pollyanna. It's not a doomer to say, "Oh, there's a wall in front of you. You might want to turn the car." That's just being smart, right? It's being realistic. And the thing is that what happens when you talk about this stuff, in the absence of another human being there, the negative emotions that people have out of visualizing what a deleveraging actually is are projected on you. "Oh, you're causing a bank or an incident."


Exploring Causes And Solutions For Inflation

Who Causes Inflation (01:06:55)

You know, who caused it is Jerome Powell and the Federal Reserve and Janet Yellen and the US-finish system, but especially Powell, because he's the chair of the Federal Reserve. Why does Powell hate America so much? Like that's actually the question. Why did he devalue the treasuries that the government had sold in 2021? Why did he tell people that interest rates were going to be kept at zero before totally jacking them to the moon? Why did he say that inflation was transitory when it wasn't, right? I have a slightly different hypothesis, which is all the things you just said are true, that the actions that are being taken are being taken by those people and those actions are creating the problem. But my whole thing about it's the debt that causes this collapse. I don't think any human, any group of people is a better way to think about it. I don't think any group of people can stay emotionally sober for long once they've lost sight of the people who built the thing. So once you've had enough people that have inherited the country working well, you now just, it is guaranteed to devolve into these choices that happen around debt, because again, we talked about this earlier. This is a, it's coming from a beautiful place. They want it, they want more people in housing. They want to make things better for people. They want to elevate people, lift people out of poverty, make sure that, you know, nobody goes without like, it really does. Like I understand the, what you call the, the wokening, I think the wokening of America. Like I, I get the great awakening. The great awakening. Whoever came up with it, I like get it. I get the impulse to it. But the problem is that you end up, you get in this debt cycle of, oh, let's just, let's, let's inflate the currency. That's print money. So we're printing money. We're inflating the currency. And look, yeah, kind of cheeky. It does devalue everybody's money, but nobody feels it too badly. Like honestly that in 2008, I was like, word like print money, man, if that's going to help people, that's amazing. I got devalued obviously. And then again, SVB, I didn't have any money in SVB, but I was still like word. Yeah, print. So I'm just like, wait, is this much to do about nothing? Or is this the cycle that humans cannot get themselves out of? And I'm as much of the problem as anybody else. Because I'm like, yeah, I don't want to see people suffer, man. If you can print like print, I guess we all like take a, but it's like, when does it become a problem? Okay. Well, so first is there's something called the cantaloupe effect, okay, which is to say, and I think some people haven't been in two to grasp with this, but I'll explain it anyway. Printing money is in a sense like official counterfeiting. And the guy who is got the counterfeit a dollar first can spend that and get more of the purchasing power. And eventually it makes his way through the system and the entire money supply gets marked down. And it's got less of its purchasing power with the 15th guy who's got it. Okay. And so printing is not costless. What printing just does is it's like basically inflation is taxation. It's like, let's say you had, I don't know, $100 billion, okay, in the economy as a whole. And then the government prints another $100 billion. That's as if the government seized 50% of the wealth in the country. Does it make sense or at least 50% of the savings? Yes. Because I don't know how intuitively this comes to people, but yes, once you get it, once the penny drops, it's brutal. Yeah. So inflation is taxation that is to say, and printing, when you're especially when you are printing a large percentage of money supply, it is essentially centralized seizure of wealth. The difference is it is, if you think about the difference between like a, like a, in your face predator, that's like communism, you know, or like a, like a lion, you can see it coming versus a stealth predator, it's camouflage, like a snake that's like kinsianism. Commonism, they would just go to your house with a gun and they would just shoot you and take your farm and, you know, throw your children in a goo blog or whatever, right?


Combatting Inflation (01:11:08)

I'm very direct. I mean, that was a lived experience. That was a lived experience of many people in Russia, China, Vietnam, like all kinds of people. That's what colonization was, okay? But kinsianism is, it steals the money in a much more subtle way where a button is hit and it's like a mosquito. You don't even feel it, right? The blood is sucked or it's like a camouflage snake or something like that. Your dad or bankrupt or devalued at the end of the day, but it's, you might even feel it's helping you. So for example, let me show you in particular a very important graph. Did Republicans pay for 2008? So let's revisit. First, take a look at this graph. Okay. Have you seen this graph before? Oh, yes. My friend, I told you, every graph you've ever put out. I think I've seen. Okay. Okay. Let's try not literally. So there's actually very close. Okay. All right. Well, that's cool. So there is a Wall Street Journal article that this comes from. Okay. And there's actually like an animated version. So you could play the animated version that goes back and forth. So you should do that. Point is, what is this graph showing? Basically it is showing congressional districts in the US buy their real GDP, okay? Inflation, Justice GDP. And what you can see is the kind of solid line, blue line and red line. In 2008, Democrat and Republican and congressional districts were mostly evenly matched. As to say, both of them had rich districts, both of them had poor districts and the median wealth, median real GDP in both the statistics was comparable. Okay. Ten years later, by 2018, the distribution of Democrat, you know, districts had pulled away from the Republicans. Like the median GDP of Republicans was like $30 billion in their congressional districts for Democrats. It was like $50 billion or thereabouts. And moreover, all of the wealthiest congressional districts were suddenly Democrat. So essentially in 10 years, this massive gap was opened up between the two parties. And this is how you went from the like, suit and tie wearing Republicans of the early 2000s to the trucker hat pearls of the late 2010s. And that transformation happened over the life of most of the people who are watching this. I believe it happened in part because the printing went disproportionately to the coasts. That's to say, if you track the cantaloupe effect, if you track the floor print of money, well, it's a fad. It buys these overpriced mortgages from banks. The banks now have extra assets on their books and they can spend it on financial assets. And then those people have money in their bank accounts and then they can go and spend it on houses or goods or whatever. But that's disproportionately in the coasts. The money went to Washington, D.C. It went to New York. And then some of it made its way to Silicon Valley. Venture capital is actually a tiny fraction of the overall investment landscape. It's like a few billion versus hundreds of billions of dollars. But like a small, rivy let of that printed money made its way out to Silicon Valley, the venture capital. And that was probably like the most productive use of the money because you're talking about investing in businesses that are being built from scratch. And that's a whole separate story as to what happened there. But essentially the money made its way to the coasts and the guy in Oklahoma, who some cashier in Oklahoma, got the printed dollar last and didn't even realize that they had been devalued and that they had been essentially had a good chunk of their assets seized and their whole town had their assets seized. The thing about this is the whole time, as you just said, people were like, we're helping people. The Fed saved the world, right? Well, what it actually was, I mean, you know, in 2016 as a Democrat administration, perhaps it was just a coincidence that the Democrats became far richer than the Republicans in 10 years. Okay. But it does seem like the cost of the print was imposed on the political opposition in a deniable and invisible way, unconscious, even to those doing the imposing, who would actually say, we saved the world, we help people, stimulus bubble block, right? And that's like a camouflage predator, where it's like anesthetizing its target that doesn't even know the blood is being drained. Okay. That's being attacked. It's like, you know, it strikes like this, right? And that's actually better because, you know, a lion gets your fight and flight response up. You know, it's a predator. Mosquito doesn't. It's done and you don't even maybe detect that it's happened, right? And so it's like, we see that evolution has selected for the camouflage predator. And that's a lot of what the financial system is. And if you think about this, by the way, and you start relating, I mean, think about how many times banks try to get one over on you with fine print, right? Fine print is not a tactic. It's a strategy. The whole point is to get somebody to sign a contract that they didn't fully read or they didn't understand and parse the legalese and lock them into some adjustable rate mortgage or some student loan where they're too naive to understand, you know, like how bad it is for the rest of their life and they're 18 and they don't, you know, they're not taught interest rates. They're not taught taxes and stuff in high school.


To fundamentally understand anything, you HAVE to say the opposite of what you read in the newspapers. (01:16:26)

They're taught just a bunch of gibberish and then they sign a student loan for the rest of their lives. The system is sort of set up to get people into debt. And to be clear, I'm as capitalist as they come, but I do believe there's asymmetric information arbitrage there and that which you've seen at an individual level that the financial system does is all something it does in my view at a collective level. By the way, there's somebody else who paid for 2008. You know that was? No. Potentially the Arab world. And the reason is basically food price by X-help trigger, the Arab Spring, right? Do you just explore its inflation? Remember the whole Arab Spring and they're a little too funny, 10s, right? I do very much. And this is going back to your earlier thesis for everybody listening along as you, biology, as you fractal into these ideas. I want people to understand that there isn't anchor. There's something that triggers this for you. But like the second, third, fourth, fifth order consequences in hindsight can be seen. And so a big part of why I find you're thinking so interesting is you're like, hey, look backwards, understand what you're going to see going forwards. Basically, once you understand that inflation is taxation and that Republicans paid for 2008 and with their money and unfortunately a number of people in the Middle East paid for 2008 in part with their lives because you know, people are like, oh, 2008, five years Christ, what was the end of the world? Well, you know what? For that, the Arab Spring was the end of a lot of people's world, right? Libya was plunged into chaos. That inflation did destabilize countries. If you say it's only 20% the cause because it's multiple causes and I'd agree with that. That's 20% of a lot of chaos. How did that happen? I actually don't understand how the inflation, we didn't really feel it not in like a way that broke us, but it caused actual instability in other countries. What's the mechanism? So food prices are the often discussed mechanism that there was like a fruit vendor who set themselves on fire that helped, you know, Muhammad was easy, right? Fruit vendor sent themselves on fire and that is thought of as what triggered the Arab Spring, right? Like essentially, you know, his prices, 17 December 2010 would have been a normal day at the local, you know, prices, the prices hadn't changed, right? And so the thing about this is like it's the multifactorial. There's a reason that the government, you know, and media covered it at that time and whatnot. It was useful in the sense of, I've seen that clip from Wesley Clark where he talks about how even in the early 2000s, like there's folks in the military industrial complex that had decided to invade like seven Arab countries. Have you seen that one? No. Wesley Clark's former four star general, right? And you know, pretty senior guy before the Iraq invasion that the US plan to attack seven countries in a few years and actually a lot of that came true, right? Oh my God, I did hear this and they asked him why and he said, I have no idea. There were a bunch of these folks in like the project for a new American century who essentially thought that Islamic fundamentalism was a huge problem and they need to democratize the entire Arab world with like what they did to Germany and Japan, right? That's like the good motives version of it. But of course, I mean, good motives. You know what I'm saying? It's like, let's call it that is probably what their internal mental model was like, yes, it's terrible that war exists, but you know, it was terrible that World War II happened and Japan and Germany are better off for it. So we need to conquer the entire Middle Eastern democratism so that their women are free and whatnot. That was an hour ago, the early 2000s. Okay. What happened, of course, was just absolute mayhem and chaos with ISIS and many of these countries destabilized in Libya and civil war. But destabilized people that that that feels more direct. I'm still trying to understand how you have an atmosphere, inflate the currency. Why does that impact their food prices? We don't have a blockchain where I can show A, purchase B from CD and so on. I mean, markets are complicated. But the US exports its inflation in part because it is the consumer of all these products around the world and the dollar is its major export. And what is a small or tolerable horizon prices in the US is intolerable abroad if somebody is like kind of living hand to mouth. To give the, you know, what I could diagram out for you, by the way, is like the exact sequence where it goes from the Fed buying an asset from a bank, which then as a cash and can buy a stock, which then puts money in the hands of an investor who can buy a house, that's actually something where you can probably track it through the financial system, to track exactly how the print of money is bidding up. You know, you ever heard of saying the price of tea in China, right? Like, what does that have to do with the price of tea and China? What does that have to do with the price of grain in Libya? Okay. To track it exactly, you need access to several different databases that are not public, you know? So you have to kind of look at the aggregate stats and say, okay, here's how the US exports inflation. And then people will argue about that. Part of the point is that it's meant to be deniable, right? But the concept of the US exporting inflation is certainly not my innovation or anything like that. That's when a lot of folks have talked about. So if you want to get mechanistic about it, you'd probably have to go and pull data sets from, I don't know, several different grain vendors and so on. You see, okay, this guy suddenly got a print of money and so he bid up X, which bid up Y, which bid up Z, which bid up the prices of this guy in the Middle East, right? That X, Y, Z, A and B are hidden because they're not on chain. Does that make sense? Yeah. Right. And that's actually, that's actually part of the point. The part of the point is the, again, the mosquito, right? The camouflage predator. The point is that you can't see it, right? The point is that that's not public. I mean, think about how much more coverage we got of Kim Kardashian or whatever in the 2010s than where did all that print money go? Hundreds of billions of dollars, trillions of dollars.


Why Bitcoin is the most democratic technology in existence. (01:23:02)

Where did all that go? I mean, how many articles have you seen? Is it a daily thing on that, a breakdown of where the print money went? If you know that inflation is taxation, then one option is you can just stay in the system like those Republicans, like those people in the least, and those folks who are near the money spigot who can benefit from the cantaloupe effect, do another print and they benefit again first, right? But if you see it coming and you get out first, now you're not part of the base that is diluted. If you get out to outside money, you get out to gold, you get out to Bitcoin, you get out to maybe a foreign fiat, now you have an asset where, to go back to that example, let's say there's a hundred billion dollars and the US government prints another hundred billion. It's seized 50% of dollars, essentially, right? But if there's 20 million Bitcoin, the US government cannot print even one Bitcoin, so can't seize the Bitcoin. Does that make sense? By still so. Yeah, I'm not in the camp that Bitcoin is unceasable. I think you lock somebody up, they're going to real quick be like, all right, here it is. Yes, but basically it's not easily centrally seizeable. You have to go back to communism, and this is actually very important. Bitcoin and cryptocurrencies more generally increase the cost of seizure. Okay, because a SWAT team costs money, it's like, sure, what, a 40, $50,000 or whatever, right? So now you have to actually look at the P&L of going and kicking in somebody's door and beating them up and taking their private keys, right? And you have to have, you first have to find them, you have to find, you have to have some legal authority to go in and beat them up, take the, and then you have to replicate that and that allows resistance because now it's no longer the camouflage predator. It's the lion, right? It's something that you can actually see. And that causes you rail us on that part yet. We're going to get into that. I think is a big thing with the network state and all that. But the question I want to ask before we move on, I think this is very important. So Chamath Holly, Holly, Holly, Holly, sorry. So I don't want to misrepresent his views, but he is, I think, incredibly bright and he has said many times, and Chamath, forgive me if I'm getting your, your idea wrong here, but basically that the debt to GDP ratio is a big nothing burger. And everybody gets their panties in a twist as that number gets bigger and, you know, we've got multiples of GDP and debt. He's like, nothing's ever going to happen. It doesn't matter. There is no upper bound. What do you say to that? Is there a breaking point or can we actually just keep printing money basically forever? Well, you know, Chamath is a colleague and co-investor and I've been on all in a bit. And I think we have a cordial relationship. Chamath has also said, put 1% of your assets in Bitcoin just in case because everything else goes to zero, then, you know what, like they can't dilute that. So you know, if you, if you asked him, I don't know where he is at numerically on that, but he probably, I don't know if he'd say there's a 100% probability of no devaluation. He's a sophisticated investor. He probably hedges. So that's, that's the first counter argument. Many people, I mean, it's a, it's a point about not seeing something in one's life. I mean, let me make the point in a somewhat different way. Most of the 20th century, most people in the 20th century saw an economic apocalypse of some kind. It was communism in Russia and Eastern Europe in Vietnam, in Korea, in Cuba, right? It was Islamic fundamentalism in, for example, Iran. That was also asset seizures happened there. That's actually why a lot of Persian people made their way to LA.


Economic security when attacking China (01:27:11)

A lot of entrepreneurial class, their assets were seized in that revolution. There was socialism in India. There was currency devaluations in Latin America, all the democracies and, you know, like Argentina was one to a rich country and it became poor in part because of these, these kind of currency crises. And, and certainly there, you know, even, even the UK had huge problems after World War II to pay for all of that. And so the, you know, I think there are three countries, Dalia talked about this. There's only three countries that compounded through the 20th century without an economic apocalypse and those were the US, Canada and Australia. And so you have this interesting combination of three facts. First, economic apocalypse is actually fairly common. Second, economic apocalypse is uncommon for Americans. And third, economic apocalypse is uncommon in American media. And instead, the one thing that we are aware of is, you know, the potential for genocide on racial terms, right? That is definitely a threat. That's something you should be aware of, right? Um, actually most of the conflict in the 20th century was not on the basis of just race, it was on the base of class, right? Do you think Americans have to worry about that? I do think so. Yes. And the reason I think so is if you're not like immunized against something. I mean, in many ways, I think this century is seeing sort of a flipping, okay? Where we're flipping, where those countries that were on the capitalist right in 1991 and the communist left in 1991 have essentially shifted sides where now they're on the cultural left and cultural right. And one of the consequences of all the countries that had suffered through socialism, communism and so on in the 20th century, even if they still call themselves communist, like Vietnam or China, they're done with that in a sense. Like, you know, they're not, I mean, there's bad things that, you know, the CCP is doing, but they aren't like fully abolishing capitalism and going back to the Maoism that make them to work. What do you think they learned that made them flip that leaf? Generates power? I mean, that's like capitalism. They like to be really blunt about it. I mean, basically you have an economic machine and you can, you know, it turns out letting people self-organize generates more wealth and power than not, right? That's if you're just totally cynical about it, right? And of course, it is, it also generates more contentment among the population. And eventually you can get from a position of totally enlightened self-interest to, okay, it's more stable than the alternative. People are, you know, have a good standard living. They're not going to protest. You can run the government or whatever. And the, by contrast, if the other side is, if you have been born rich, have you heard that, you know, saying like a short sleeves, short sleeves and three generations? I love it. Yeah. You should be an old American saying, right? So the current generation in the US has been born to wealth, right? They're born, a lot of people who've come to majority have essentially inherited this giant superpower with the scaled economic system and so on. And they didn't have to work for it and fight for it, fight in the wars. They didn't have to earn it. And so the memory of what it took to earn it has fallen off. So it's the opposite of those, you know, who grew up under socialism, under communism. You're not, you know, like in India, for example, which is actually rising and doing quite well on balance nowadays, nobody is like romantic about 15 years ago. It was much worse, you know. Life is getting better there. Infrastructure is improving. Technology is like a good thing. Capitalism is a good thing. And in general, you know, now that that's ups and downs, but things are generally up into the right. And by contrast in, you know, the West, I think they've forgotten what's got them there and it's a combination of, you know, all we can spend without having to produce, you know, I've heard the concept of the resource curse. And that is.


The luxury of an economic inheritance (01:31:26)

Yes, very much so. Yeah. So like the resource curse, it's like, you know, many countries that have oil actually find that people just end up fighting with oil or the money is spent in a bad way and so on and so forth, right? It's like you don't have to earn it or what have you. I'm not saying all, like Norway used to seem to manage it. The UAE is managing fairly well now and so on. So it's not 100%. But it's like, it's something that can set you wrong. And so there's a huge difference between founding and inheriting, you know, not just for an individual, but at a country level, you know, George Washington, you know, founded like the US military, right? And you know, there was some, you know, like Hamilton founded like the ancestry of what the federal reserve. Those guys understood the constraints in the world as opposed to the 37th mayor of this or the 42nd president of that. Like those are folks who, you know, like inherited something. They're just like they were named into a system that was going before them and then continues after them in the same way that like the 15th CEO of GM or something like that is so far distant from the founder. Sometimes you get somebody who's like Satya Nadella, who's like, who manages to make their way to the CEO position, but has the DNA of a founder. That's a very unusual kind of person because to make your way to the CEO position, you sort of be a conformist and rule follower and so on and then to actually to reinvent the whole organization, you have to have the founder DNA. So it's unusual that it happens. It's not, you know, it's on zero probability. But right now you have a machine that's the opposite of like in India or China within living memory, they were, you know, they were communist or socialist. They were very poor. So you don't take it for granted. Whereas we will always see people saying in the US is of course for number one, we'll always be number one. We inherited it being number one. I can't believe you're saying we'd never be number one. It's not hungry. And by the way, even, you know, like a great example is the response to super powered competition. Remember Sputnik? Right. Yeah, of course. I mean, probably before we, right. So when Sputnik, you know, the, the Soviet, it's launched, you know, Sputnik, the US response the time wasn't, oh, the Soviets have demographic problems. They're going to go to zero. You're a, you're a doomer. You're just repeating Soviet propaganda by talking about Sputnik. You lose their, why don't you believe in America blah, blah, blah. Instead they're like, oh boy, these guys are ahead. We need to get back ahead. Massive math and science, you know, effort. We're going to put on a man on the moon and, you know, for the end of the decade, like rising to the challenge and treating your competition and taking them seriously is actually how you win as opposed to the, so the response to Soviet's couldn't be more different than the response to China, which is a combination of denial and actually stealth imitation. So denial, it's like, oh, you're saying, you know, China's going to go to zero. You know, they're obviously suck. You know, we have the Mississippi River and they don't. So they're, you know, you know, I'm talking about other people who will argue these like, again, I've got them against them. Demographics, for example, throw the way out. It's done. Yeah, exactly. The demographics are done. They have terrible geography. They don't have a blue water Navy. They can't feed themselves and so on. Just to kind of go through these points because people will raise them a lot. First on, should I talk about that for a second?


The Impact Of China On Global Economy

China's Competitive Edge (01:35:00)

Right. Yeah, please. This to me gets into why we're in trouble. Yeah. So, so first, just looking at the graphs, you know, maybe put their graphs. Graph of steel production. Okay. And then put the graphs in. It's insane. It's insane, right? So you see this graph and what you can see is anybody who's making analogy to the past saying, oh, you know, it's just like the 1970s and US is in a malaise, but, you know, we pulled it out and so on. The US is making 10 X amount of steel of China in that period. And now it's the other way around. China's making 10 X. Why steel bulgy? Why do you focus on that? Well, it's just, I mean, you can look at tons of other stuff. You can look at, you can look at basically every raw material or, not every raw material I should say, every manufactured thing, a variety of different graphs look like this. And the reason I think steel is interesting, exactly, it's emblematic. These guys are playing to win. And look, I'm in California. If I had to do the last three years over again, I probably would not be in California. There is, there's just a growing sense of like, that trying to win is bad and that you shouldn't want to be competitive. You should want everybody to win. And I'm like, no, I'm here to win a championship. I want to be the best. I want to play with people that want to be the best. And so when you look at China and you're like, ah, they're going to collapse like, you know, we don't need to respond like we responded to Sputnik. I'm like, you're going to lose. Like you've got to be in this game to win. Now you do not need to love to crush your enemy and hear the lamentations of their women, you know, as they're driven before you. That's not my vibe. But my vibe is very much like the reason that steel is interesting is these guys are building things now by the building too many things and the building things they're going to like knock down maybe. But one thing I've heard you talk about, which I think is, is really insightful is that the, that thing that man, if you're of my age, when you hear that idea of, oh, Pearl Harbor, I think we awoke a sleeping giant and like, you know, this is like a fatal mistake and the US comes and just like manufacturers and we do this unbelievable stuff. We're able to build this Navy and army like unbelievable. We end up doing what we do in World War II. Absolutely incredible. Amazing. Amazing. But now like if we had that same moment now, I don't think we'd be able to manufacture our way out of this. We've outsourced all of that manufacturing. And so now we're in this different period where culturally people don't want to be dominant. They don't want to be aggressive. Like that scene is like bad mojo and oh, it's toxic masculinity or whatever. And I'm just like, oh my God, like I need to be around people that want to go hard. I want to be around people that want to win. Like I want, I want to be around people and look, this is going to be a little naive. So please look past this is, I'm just trying to explain like my spirit of competition. I don't look at China and think, oh, I have to beat them and they're bad. I look at China and I go, all right, China, I see you. I see what you're building. I see that you can build a train station or whatever it was in, in like a night. Not joking by the way. It might have been 48 hours. You showed up with some of you. Yes. Yes. It was so fast. I was like, this is insane.


Cope against China (01:38:14)

And in the US, California, especially like you can't get a bathroom stall put in. You've shown this like cutting the paper with it for bathroom stalls. Like guys, what is happening? And so getting back that energy of like, I want to go against the best. I want China to be as strong as possible. As somebody who has read Mao the untold story, I am so happy for them that they have moved away from that and that they're coming out. I want a formidable opponent, but I want to be sharpened by that opponent. I want to get better because they're trying to outcompete me. And so I want to outcompete, like I want to rise and do better. And look, I don't want to go to war. Trust me when I say I don't want to see them impoverished. That's not how I envision this. But when I was a kid and it was like us versus Russia and it was like, they were doing cool stuff and we were trying to do cool stuff. It was like, okay, that felt good. Like it gave me a sense of pride in my team. It gave me a reason to want to get in there and do well. And because of the way that I'm wired, I didn't want to crush my opponents. I didn't want to see bad things happen to them, but I did want to win. And like that spirit is just going away. I already know that the comments now to this section of the video, people are going to be like, oh, this fucking guy, but I'm telling you, man, you need that spirit. So there's a few things which I think of as cope whenever you mention China that are worth addressing, right? One of them immediately where people will come with a psychological defense will be like, oh, China can only do that because there are a communist dictatorship and we're a free country. That's why it's messy and that's why we're slow at building and so on and so forth. Okay. Except, I mean, you know, if you believe America was a democracy in the 1940s, it could build a bomber in, you know, like a day, right? Actually, no, here's the stats. What is it? B2 bomber, B24 bomber, the source Ken Burns says 60 minutes to build a P24 bomber. Okay. Oh my God. And that is, of course, that's the average time, right, in terms of, you know, how many were being built per day, right? B24 liberator, long-range bomber, one came off the line every 63 minutes. Okay. Like now today, it takes, you know, so double it World War II America can make a B24 bomber in 60 minutes. 2022 America needs 20 years to reopen a bathroom. Okay. In San Francisco. And the thing about this is there's actually two different demographics. One demographic is the one you just mentioned, which says that they don't want to win. They want like all these environmental impact reports or what have you. Um, the other demographic is one is like, okay, yeah, we need to do industrial policy, but they're sort of, it's like larping, right? Because they are trying to do with printing and spending. They're like, wow, spending on factories is up into the right. But you know what? Industrial policy is like venture capital and simply spending the money doesn't mean you'll get the returns. It has to be done in a capital efficient fashion. And I'm not seeing that, right? I'm just seeing money thrown around without constraint and without accountability and with a CEO. And so I'm not, I'm very bearish on essentially industrial policy right now. Okay. It's like, it's like saying you're going to do venture capital. There's a difference in doing it well. Coming back up a little bit. The point is in, in, if the US was democracy in the 1940s and China was communist in the 1970s, it was much more communist and genocidal then. And so if the argument is, oh, there are communist dictatorship, that's why they could do it. Well, why weren't they, they're even more communist then. If you're, if you're actually arguing that, that gives them strength, it doesn't because they were weaker 50 years ago, right? And the US was stronger and you'll argue with civil democracy, right? So so that actually blows up in my view that kind of co-style argument that, oh, you know, it's because they're, you know, evil that that's why they're strong. They were actually much more evil, arguably 50 years ago when they were killing millions of people during the Great Leap Forward and Cultural Revolution.


Immersian Vs. Coating (01:42:06)

Yeah. And now I'm not saying they're against that. I think that's madness. Yeah. So, so I'm not saying they're good, like in the sense of, I don't like the social credit system and, you know, the, the surveillance, you know, state they've built and so on. There's many legitimate critiques, but they're not like, they're not as murderous as under now, right? There's actually an improvement, you know, like it's seemingly by a country mile. But if everybody has a North Star, which is human flourishing, I will say that, yes, I don't think humans will flourish as well, even under the current regime. I just think that that social credit scores and things. It just plays out in a way that breaks people's spirit. I think that part of what allows for human flourishing is freedom, but I am not deaf to Ray Dalio's take, which is, look, they are a different society. They have different values. And so once you realize that the people could rise up at any point and they don't, so there is something going on there. It's not bad enough for them to drive them to revolt. Now maybe it would be if the US suddenly we woke up and we were like that, there might be a lot more pushback. So anyway, I can simultaneously hold multiple ideas in my head. I would not want to live there. Does not seem like the thing that's going to lead to maximal human flourishing. But I agree with you very much having studied a limited amount, but having done at least some studying of Chinese history, it's like, whoa, it's a lot better than it was back in the 70s, 60s, 50s, 40s, just way, way, way better. Yeah. So one thing also, by the way, and this is controversial, but I'm just going to bring up these two articles so that people can at least see them. The thing is that it is true that China has some of charge that China is being very, either it's genocidal or it's cracking down or it's concentration camps or something on Uighurs in Western China. That'd be the counter-argument. The thing is that the US was bombing Chinese Uighur militants and once jailed them and now defense of make-sees articles from foreign policy. So here's NBC News 2018, US targets Chinese Uighur militants as well as Taliban fighters in Afghanistan, US once jailed, Uighurs now a defense of an informed policy. So the thing is that at one point, the US and China were both thinking of what's going on there as "counter-terrorism" and there's a woman named Sheena Grittens that has written about this, right? And then it's kind of totally switched sides, right? And this is not to defend anything that's going on there because I'm sure it's quite brutal, but it's like Sheena Grittens on understanding China's policies in Xinjiang. This is in the Belfer Center.org, okay? And essentially, she's saying that China is talking about that as war and terror, very similar to how the US justified its interventions in the Middle East. The reason I say this is it's like, okay, that's useful to know because it's just not talked about. And one thing I find is all the negativity towards Russia and China is there's something merited there, no doubt, but it's also something which some people think it's like being super nationalistic and being super jingoistic and having a big war is just what the country needs to, American needs to get back together. A big war, that'll bring us back together a common enemy.


Will a war bring us together? (01:45:46)

I've actually seen people make this point. Have you heard that kind of thing before? Of course. Right. So, the thing about that is that's not necessarily true because if there's a big war, I mean, if you think about COVID or 9/11, like the war on terror or COVID, that didn't bring people together. That just immediately got politicized and if there's an alien invasion, one side would sign the aliens almost certainly, right? That's just the dynamics of how polarized it is. And I think even though China is a bipartisan issue now, it's questionable as to how long that lasts. We'll see. And it's a bad thing by the way. It's like you can't build America by hating China. You need to love America or love other Americans. And you see my graph on like it's not one country, it's two parties. Yes, dude. This is one of the most troubling things you say. And I'm saying that in the context of I know you're saying that we are potentially facing financial Armageddon, but this, so going back to my rogue wave interpretation of your thing and I should explain it to people. So rogue wave happens when you have a bunch of big but not destructive waves. They come together at once and somehow their amplitudes magnify and it will create this rogue wave that can topple an oil tanker. And that feels like when you look at the collapse of an empire, it usually they do not die from without they suicide from within. And so you need this high degree of tension inside the country so that you can't get everybody on the same page that everybody's just there's so much infighting. So yeah, walk us through because this really freaks me out that we're we no longer make sense to think of us as Americans instead, we should think of us how as Democrat and Republican or even better as one's own tribe. You know, some people will say Republican or Texan or Christian or Bitcoin or something like that. And first is just a level set because, you know, like it's useful to quantify something, right? So if you look at this series of graphs, right? It's not one country. It's two parties. So basically this is Congress and an edge between two nodes is whether they voted together. 1951, there's lots of bipartisan stuff happening in Congress. 2011, it was just totally a bipartite graph. And that's a long-term one. Oh, it's maybe even more than 2018. Yeah, this is 2022. This was 12 years ago, how partisan it had gotten at the leadership level. And it's even more aggressive than that, right? So this is a 70 year trend, right? Where you can just see it gradually getting more. It's like mitosis. It's like a cell coming apart, right? For 70 years. Yeah, it's exactly what it looks like. That's crazy. And then it's visible at the individual level in a totally different kind of data set. So the previous one was like voting. This is social networks. And this is and the previous one was leadership. This is the masses. This is from 2017, it's showing people, people, friending each other, following each other on social networks.


Weak social bonds (01:48:55)

And red follows red and blue follows blue. And this was six years ago. OK, it's gotten even more disjoints. And said now blue has their own unmasted on and red is on, you know, gab or something. And so it's gotten even more disjoint in their own, you know, rooms, right? This study says that it's not just that Democrats and Republicans aren't friends with each other. Democrats and Republicans don't marry each other. 96% of Democrats are not married to Republicans. So ideology becomes biology in one generation. Right? Listen to me about the... Yeah, the Sunnis and Shiites. This is like hearing us referred to in that way was very eye opening for me. If you ever read the New York Times about a foreign country, it'll be like in the arid steps of so and so. Tribes have fought each other for millennia. You know, they'll kind of... They'll have a gorilla's and a miss kind of thing, right? But the level of conflict in the West now is tribal. It's Sunnis, Shiites, it's Houdu, Tutsi. Once you kind of start applying that filter, it's only partially ideological. And one way of seeing that is during COVID, do you remember like there were like four flips, for example, at the beginning, Republicans were worried about COVID. And Democrats said it was racist to talk about the China virus. This is from like roughly January to March. Once Trump started acknowledging it and even saying something like, "Oh, the virus is... We should shut down testing or something like that." Like basically trying to downplay it at the time. Democrats completely flipped and now they were saying it was a huge deal. And then they flipped to lockdowns and Republicans flipped to libertarian. And then Trump's vaccine, Trump pushed Operation Warp Speed and so on through and got the government out of the way for vaccine development. And if you remember, Kamala Harris said something like, "I'm not going to take a Trump vaccine."


Democrats and Control Conspiracies (01:50:54)

And so at the time, the Democrat position was vaccine hesitancy. This has been totally a memory hold. And then after the election, the vaccine was actually held back until after the election. There's a guy Eric Topo who's talked about how that was like there was a campaign or lobbying campaign to keep the vaccine back so it wouldn't affect the election either way. Then it flipped again and now Democrats roll for the vaccine. And then eventually it became something where Democrats kind of gave up on lockdown and then the whole thing is just sort of forgotten. And I shouldn't say forgotten about it, but memory hold are not discussed. The point is that's like at least like two or three or four flips depending on how you count. Okay. And when you have flips like that, it's tribal, not ideological. Each tribe is saying what they, you know, they can be some rationalization for each tribe at any given point in time. Oh, I didn't think of a serious than I thought it was. Oh, I thought it was serious than I realized it wasn't. And maybe there's some truth to that. But it's also something where A is taking the position because it's the opposite of B and then vice versa because stick a thumb and the other guy's eye. Does that make sense? Oh, yes. And you know, the thing about that is why is that important? It means talking about the United States is actually a misnomer. It's a dis United States. It's the individual states. And it's Democrat and Republican. And you know, it's something where like the flag itself is a contested symbol where you'll find people saying, you know, in your time, just like a year ago or something, what do they say is like the American friend that put an American flag up on his house and I said, oh, that's going to get ripped down. And he was like, oh, it already has. And I'm crazy. Ouch. Yeah, 4th of July, a symbol of unity that made no longer a night. People make assumptions. So the flag is like a contested symbol. Okay. And that was like July, June, June. The point being that, you know, I think the only thing that you can get super majorities, 99% of Americans to agree on is that they value the dollar, not the flag.


Money And Power: A Critique On Financial System

The PLLC that holds the US together (01:53:07)

That is actually the, it's an economic union like the EU, where the dollar is last tattered piece of paper that's holding the thing together. You know? And you know, like the EU has the euro, right? It's like an economic union, even that, right? So if there's like a serious currency crisis, which I think is coming because while we're in a background of high inflation, with all of these crashes, you're going to have to print, that's a high level version of why that printing will cause way more inflation. And then you have something and you have options also, right? You have exits. You have alternatives. You have cryptocurrency and you have foreign currencies and you have other countries that are opting out and getting into gold or trading with China. The thing is that helps or hurts the pull apart. Well, that's, I mean, helps, it accelerates in a sense, right? Because a person can pass away without any successor. But for a system to die, it needs a successor or multiple successors. Like I say, for the Soviet, you need to collapse. People had to have an alternative system they could look towards that they would copy. And so people copied the US system, right? So when the Soviet Union went down, India moved towards capitalism and so on. China's the only one that didn't, right? It kind of kept its own system at the time. Not the only one. There are five communist countries that stayed communist, but China was a big one that did. Almost everybody else went into the kind of capitalist liberal democracy camp. So right now what's happening, what happened in March is really apical because you had a guy going vertical and that's a whole other massive storyline that's like an entire multiple podcast, whatever. The idea going vertical, you had the banking crisis getting underway showing how important this devaluation of bonds was. And you actually also had China going vertical, which is much more important than people realized. Do you know what I mean by that China going vertical in March? No, it's going to ask you. This was just not covered in the Western press. It should have been blaring front page headlines and total focus on it. China developed a new muscle that I had not seen them flex. They had been kind of yelling and so on for the past few years. They developed the muscle of diplomacy and they figured out how to get a peace treaty between Saudi and Iran, which is a huge deal, to get Saudi Yemen more to stop, to essentially unify the Middle Eastern countries around Chinese, like China being the Hegamon coming in, like for example, they're forming like a unified navy in the region with Chinese input as a counter trade to the US Navy. That's insane, like totally different than what you think of as Middle East where everybody is warring. They're like unified with each other, Saudi and Iran and China, against the US, the US is unified in its enemies. Have you even Iraq like trading in Iran with China? You have UAE trading in Iran or China? You have Brazil sending a massive delegation to China. You have Macron taking photo ops with Xi Jinping and China. Part of that is because, again, everything is connected, but the Ukraine war has caused such huge energy costs and other costs to Western Europe that Macron and France are dealing with social unrest. They're the yellow vests a while ago and now there's people protesting pensions and other things. He needs wealth for his country and China can export stuff and he can do economic deals with them. That's why he's part of why he's reaching out. The reason is he has always wanted to put strategic autonomy for Europe. Then you have Southeast Asia, which is another contested region between China and the US. The Asian countries are saying they're going to deep dollarize and they're taking... They have their own skepticism and part of China, but they're taking money from China. And on and on and on and on. What you have, basically the fact that China learned diplomacy is bringing... Also, one more example, the... Zelensky went and took a call with China and now the Lincoln, the secretary of state, has said China may be a partner for peace with Russia, Ukraine. That is the... How seriously do you take the de-dollarization? I mean, basically how seriously... I take it very seriously. The reason I take it seriously is there's actually this great article saying China's unusual path to reserve currency status. And what's it called? The Renminbi is unconventional route to reserve currency status. This was actually... I'm pacing the link here in chat and it was also written up in the financials' times. And essentially, the point they're making... If you remember that graph which showed China traded with the rest of the world? The terrifying graph that shows that they've basically taken over most of the world. Yeah, so a lot of people... The US is so finance heavy that people will point to the dollar share reserves and say, "Hey, that's still really high. Therefore, nothing is happening."


Why Eric takes deleveraging seriously (01:58:18)

But this is like pointing to, in my view, Soviet GDP. The US has started posted its highest GDP with its fake stats in the year of its collapse. The difference here is all these countries are trading with China. So if you go away from thinking about in terms of finance and thinking about instead of in terms of trade, all these countries that get hard goats from China will use what you want to buy those goods from China. So as... It's kind of back to the future. The US didn't start as a financial power. It started as a manufacturing and exporting trade power. And in a sense... It's a very interesting note. Go ahead. You see my point, right? So it's not that big a deal for those countries to flip over to paying China in its own currency and holding something like that currency to pay for the airports from China. And those imports just keep searching. So that's like the fundamental is... I mean, it's not trivial to replace the financial system. But remember my points earlier on how FinTech and crypto talent all around the world and people have launched currencies. There's countless FinTech and crypto companies, payments companies, right? So that talent is there in a way that it wasn't in 2008. People know how to do that from scratch. Okay. I want to lean into this moment though. I think it's really important to... Because what people are going to push back on there is they're going to say, "Okay, sure they're doing a lot of trade in the yuan, but they're still reserving in dollars or storing value in dollars because they're doing that. It's never going to lose its status as a reserve currency because of that. We're going to be able to keep printing money. And also, and this will be big pushback, and this really resonates with me. And it's why I would not be putting any of my money into yuan. I don't trust Chinese government not to seize it. So it's like I get that countries are going to... For sure, for sure, they're going to do more trade with China. But if they're smart, they're going to keep them at arm's length. They're not going to overextend themselves. They're going to stay in the most trusted currency, which the question becomes, will the most trusted currency be the US dollar given our very aggressive moves, certainly sanctioning the life at a Russia? That signaled to people that, "Hey, we're not afraid to weaponize the dollar against people." I think that's a terrible signal at a time where China is taking over a lot of the world and trade. But I do have a feeling that people are going to be very hesitant to switch over from the dollar to the yuan. What say you to that? Yeah. So that's why I was saying de-dollarization is decentralization. And so meeting... So when you're going to break over to China yuan, it's going to go into Bitcoin as but one example. Or maybe just scatter. Well, so you forget about Bitcoin for a second, right? So I think because it's a big world with 8 billion people, right? So after this thing fractures, you have a few hundred million people pick an option that's actually enough to do quite a lot with it, right? So first, let me just give some graphs to level set. Do you see this graph which shows foreign holdings of US treasuries as a percent? Yeah, total debt. Yep. Right? So that peaked in 2013 is declined quite a lot over the last 10 years. So essentially... Massily. So what percentage drop is that? Do you know? I mean, from 34% to 24%, it's like 10% absolute relative. Yeah, sorry. It's too small for me to read the numbers. I can just see the arc. Oh, yeah. So it's 34% at the peak here and 4% as of 2020. It's probably dropped off quite a bit more in 2023. So the point is that foreigners, when they're saving money, are not saving it in US bonds in the same way. They're producing their bond holdings. Japan, China, etc. For the most part, there's the whole graph on foreign holdings of US treasuries. So what are they buying instead? They're buying gold. So basically they're not saving it. So it's not just... This chart right here tells you something like this really is interesting to me. Now I look at this chart and I expect the price of gold to have skyrocketed, but it hasn't, has it? Well, so that's an interesting point, right? So basically, by the way, if you take this chart in the previous one, you can see as foreigners are buying less US treasuries, they're buying more gold, right? Gold is a time tested way of physical gold, it's the time just way of saving. But you can just go in as a foreigner, you can go and load in gold and get back you on. And more importantly, you can put in you on and get gold out, okay? If that is true, China does have an open capital account in gold. Okay. And the thing is that not everything is necessarily reported. Have you heard my concept like free headline people and post headline people? No. So like a pre headline person, think about a CEO or a researcher or a reporter, right? The CEO knows a product is going to launch, a researcher knows a study is going to be published, a reporter knows a story is going to appear. But you know something is true before the headline appears. Makes sense, right? Whereas a post headline person can only process something that has been officially acknowledged by an establishment. Okay. Yeah, I talk a lot about this as an entrepreneur. You cannot lead unless you understand the essence of the thing. If you understand the essence of the thing, now you can make predictions, you can move in a way where you don't have to follow people. That's a great point. Can I quote you quoting Elon Musk on this point really fast?


You posted this tweet, I thought this was absolutely brilliant. So this is you like giving context for everything you're saying is going wrong. And Elon Musk tweeted, "Between Tesla, Starlink and Twitter, I may have more real-time global economic data in one head than anyone ever." And then he goes on to say, "FED data has too much latency. Mild recession is already here. It's not like just the canary in the coal mine, SVB died. One of the Staunchest miners, Credit Suisse, died too and the cemetery is filling up fast." So one, just sort of closing the loop on all the trouble and people seeing it, but reinforcing that point that you're making that there are people that are able to accrue data to form the world view, to have a hypothesis on where this goes, and they're able to move differently. Yeah. And the thing is, there's a lot of people nowadays who are like regime apparat chicks who are just incredibly literal and, you know, the herd term NPCs, right? Like just basically, yeah, like anything that has not been published in an official source that they think like their probta is a conspiracy theory. Where's the source citation needed and so and so forth.


How people are driving the demand for modernizing shelling points. (02:05:22)

You know, if you don't have, that's why I said pre-headline versus post-headline people. They are so literal that they cannot make logical inferences, right? And so, and that doesn't mean it's 100%, but for example, not every single currency deal that China has done has probably been announced. People speculate that they may be doing gold deals behind the scenes with Middle East, where that is a well-known proven currency. And you know, where do I think gold, physical gold, lands, and throw it, come back to the gold price. Gold price is increasing, right? Where I think physical gold, I think physical gold is something that probably returns as a state-to-state instrument. And maybe Indians in particular use it as an individual thing. Gold is still like a big thing in India at the individual level. But the thing about gold is, you know, there's overhead of verifying it and valuing it and it can be spotted with the metal detector at the AR port and all that type of stuff, right? It's like physically hard to carry. It's not modern in that sense. Still as like a fire alarm, like it's something that you can go ring, ring, ring, and everybody runs out of a burning building and they converge on one spot. It's like a proven spot before they go back to their homes or something. Gold is a pretty good shelling point. It's one of several shelling points. Bitcoin I think is another, right? A point being that people who take like the very first-order approach, "Oh, China doesn't have an open capital account. Therefore, I'm never--" and certainly I wouldn't want to have a lot of holdings in the U.N. But people might keep a checking account in the U.N. to pay for their imports from China and they have their savings account and gold or perhaps their local fiat or Bitcoin. That's what I mean by de-dollarization's decentralization. Does that make sense? Very much so. So, we haven't talked a lot about Bitcoin and actually do want to get a better understanding of where you think this goes. We probably at this point need to get a peek into your future thing with American anarchy, China control, so on and so forth. So, one of the things that you really grab people's attention with is this idea that Bitcoin will go to a million dollars. Anybody holding Bitcoin sort of wants that to be true, but if you're anything like me, you also don't want it to be true because you know that just the amount of brutality, when you put out that tweet, I said, "I'll be a hell of a lot richer if that actually does happen." But oh my God, I hope you're wrong. So, do you really see a path to Bitcoin going to a million or is it just going to be one sort of small player in this decentralized fracturing of a whole bunch of different, whether it's coins or sovereign fiat that get a piece of the pie? Do you see the, in the Atlantic, the trillion dollar coin might be the least bad option why the legal scholar, one of the great things the US Mint can defuse and you see the United States of America, one trillion dollars. And this is, now it wasn't actually pursued, but the fact that this was, this got closer to being done or discussed, okay? And it was defended by Krugman and it was only rejected from a optic/tactical standpoint because it might be a trillion dollar coin. Well, well, what? Oh, you don't know, but okay. So basically, because the debt ceiling evidently, this was something that they had a rationale that this to be a workaround and the Treasury could mint a coin of any denominations. Like, they could just mint a coin and deposit it and, you know, via some magic, the debt ceiling wouldn't be a constraint anymore in government spending. I'm outright confused by this one. So I see a trillion dollar coin. I assume somebody's kidding and they're just talking about hyperinflation because it doesn't make me immediately think about that. Oh, you hadn't heard of this? I thought you hadn't heard of it. If this is a meme, like what, have you heard of like modern monetary theory? I've heard of it, but I couldn't tell you what it is. Basically, it's a group of folks who believe that the only constraint on the US government's ability to print is inflation and taxation. Like that is to say, they can and should print as much money as they want.


The debt ceiling, digital communism, and Modern Monetary Theory. (02:09:46)

You know, it is something which is just a legacy, stupid constraint that we have a debt ceiling or whatever. It's essentially like, they wouldn't phrase it this way at all. It's digital communism that says because the US government has guns, you can see as much of your wealth as it needs to by printing money and it can force you to give it back at a gun point if you want. So it can re-registulate all the wealth and so on and so forth. So people, which is true that it can digitally do that. And the question is whether that breaks the illusion and people move to some other currency or whatever, right? At which point you get to difficult situations like that too. But this trillion dollar coin thing comes out of that school where they're like, we don't want to negotiate with Republicans over the debt ceiling instead. We will use this thing in the legal code to mint a trillion dollar coin and deposit it such that we don't have to negotiate with Republicans at all. It's almost like an executive order, right? The point is though that this creation of money, they're obsessed with it. Like a lot of these folks are like, mint the coin, mint the coin. Krugman has talked about it. This guy on Bloomberg, Weisenthall has talked about it. Rowan Gray has talked about it. It's in the Atlantic. It's taken seriously as a policy proposal and it's gotten closer since the last debt crisis. Whether it actually happens or not, it's symbolic of... Go ahead. So the trillion dollar coin would go in somebody's bank account and allow them to... Not a human, but in the government's bank account and then it wouldn't need to raise the debt ceiling because it now has the money. It wouldn't change anything, as I would say. It wouldn't have any inflationary impact. I think I'm kidding. Google's trillion dollar coin. See, that's the thing. Okay, so... So... So... So... So... So... So... I'm... I'm going to assume that they're smart, well-meaning, well-intentioned people, but they really believe this is going to work. And so one of us has the wrong base assumption. So here is a law that I live by and I really believe this is true. When too smart, well-intentioned people think the other is stupid, they have different base assumptions. Now, a base assumption is your belief about how you are and how the world is. And if... Now, when you have a collision of values, it's a totally separate thing and that's how you... It's what you believe the world ought to be like versus how it actually is. So I believe, maybe you're wrong-a-roniously, but when I hear a trillion dollar coin, I have a base assumption that says, "If you print money, you have what you're calling tax, you have robbed people of the buying power because of something mechanistic, not something philosophical, something mechanistic, that there is now more money but no additional goods and so the cost of the goods goes up because everybody's like so flush with cash that they will pay more for a finite pool of items." And so the cost of those items necessarily goes up to match the number of people just like throwing money at them. And so you think like, "Oh my God, I just got a trillion dollars." But now your loaf of bread costs a trillion dollars and so yes, you have a trillion dollars but everything just costs more in proportion and so you haven't gotten rich. Like I will just tell you, as somebody who went from normal money to rich in the refresh of a banking app because I sold a piece of my company, that moment where you outstrip inflation, your life changes, everything's different. You can afford different everything, everything, it's just like it's a really fascinating moment. But if my rent, if somebody gives me a hundred million dollars but my rent moves up in proportion, I may have a hundred million dollars but I still have to live in the same apartment, I still have to have the same car, my gas proportionally has gone up, food's proportion gone up so it literally doesn't matter. So what am I missing? Like if really take their stance for a second because I want to understand, like they're not idiots, they may be wrong or I may be wrong. But like, okay, so there's a few different filters on it, right? I understand. So first is conflict versus mistake, it's like, isn't there something where they're just making a mistake or is there something where there are different tribe and the government tribe, blue tribe wants to attack Republican tribe or non-government tribe, right? That's one filter. The second filter is the 50 IQ, 100 IQ, 150 IQ meme. Yes, and love it. But you feel like you said to make fun of something. Well, yeah, so 50 IQ guys like trillion dollar coin is stupid. Like you guys like, no, and then gives this whole equipment gibberish on why, you know, like the trillion dollar coin won't be inflationary and so on. And the 150 is like, yeah, it's stupid, right? So there's like, this is kind of like CDOs or AAA rated self-prime mortgages. The 50 IQ guy says these people can't afford their house. So why are you doing alone with them? 100 IQ guy has all this stupid math or whatever that explains why that house is good and the 150 IQ guy can actually go into the math and rebut it and say actually when the default rate rises above X, then your CDO crash the Y and your CDS increases. So they can go in and plow through those abstractions and show why it actually collapses. But that's kind of what's in my view happening here. Now, one thing I will say is I think a lot of the financial system is quote smart in the sense of like playing a three card Monty on people. They'll go like this. And the thing is that the trillion dollar coin is less clever than their usual kinds of illusions. You know, when they do quantity of easing or the bank term funding program, that is set up to be hard to understand. It is like naturally selected and evolved to be understand. You know, I can prove that to you. While you prove this, I want to ask a very pointed question. Yeah. Do you think the people running the global because it seems like a global problem? Are the people running the global financial system evil? So it's a really difficult question. I think some of them are evil. I think some of them are stupid. I think some of them are like Soviet. I think the close analogy is like Soviet apparatrix, right?


Are the people running the world's financial system evil or just self-interested? (02:16:20)

Let's go to that. It's the name for a second. There's some mix of fraud, some error, some like spin, some tribalism, some pseudoscience, right? And different people did different things at the same time, right? Like the result was evil. Some of the inputs were evil. A lot of it was stupid, like financiers thinking of everybody else as dumb and what have you. It's a mix. You know, there's a way of thinking about it, you know, which is good is helping somebody else without concern for yourself. Smart is helping somebody else while also helping oneself. Evil is harming somebody else while helping oneself. And stupid is harming somebody else while harming one's self. And I think a lot of the things the financial system does are it's evil in the short run and stupid in the long run. Like they have a short term gain by harming somebody else, but they spend down, especially recently, they spend another trust. So they harm everybody in the long run. Like a lot of stuff they do with sanctions or freezing, de-platforming, censoring the financial system, but like the social system. It has a short run advantage for them.


Exposing Wall Street Malpractices

Evolution of Helixes in Human Societies (02:17:37)

The institutions are doing this, but it's a long run disadvantage because it actually reduces their power, but they're so short-sighted or short-searching or are you to see that. I'm going to sort of refute my own point here. So as you were saying that, I really want to believe that people are well-intentioned, that they look at this incredibly complex thing that is the economy. They look at the modern miracle that is the modern economy. When you look back at, I mean, tens of thousands, 20,000 years, that you realize that for a long time, the sort of capital markets that make capitalism work, they didn't exist. And so we've had this just Cambrian explosion of betterment for the world with innovation and all of that because we really sort of master this economic game. Now as Ray points out, you unfortunately, you are in the middle of these big cycles, and when a deleveraging happens, it's really brutal. But if you don't care about any one generation on the long arc of history, it's pretty amazing. And I've heard you talk about these helixes. So there is a sense of repetition in the way that societies move, but we are also moving up and we are making progress. And so that is, there's something very interesting there. So anyway, but when I look at that, I do say to myself, all of this makes a lot more sense once you know Nietzsche's will to power. And I do sometimes chastise myself for my really wanting to believe that the way that the global financial system is set up is well intentioned people who maybe have gotten out over their skis a little bit. And they're really trying to do something wonderful and beautiful. But I do worry what I know about the Nietzschean idea of we all crave power to be in control of our lives, to be in control of others, to be the one with our hands on the stick as it were. Because once I let myself bring in that bit of darkness, my predictive engine works better. And that scares me. There's stupid and evil. There's also tribal. And if you remember the thing about like, it's not one country, it's two parties, you know? The thing is, so okay, if you just imagine like a Japanese guy was in Beijing and he just started suddenly knifing five Chinese guys, okay, that would be a huge incident. That would be something that would be considered a crime by the Chinese government and the Japanese government. You got to go to jail, right? It'd be a huge thing. If that happened 80 years ago, right, when Japanese were invading China, that guy might get the Japanese guy might get a medal, you know, like baneting, you know, like Chinese soldiers we'd never met. And the reason is that that was tribe on tribe, tribal warfare. So that act that we'd consider evil when those tribes were not at war would in fact be considered laudable when the tribes were at war. And that's like conflict versus the mistake. And so if you feel that the Republicans or the population at large or whatever is evil, then any deception or whatever, I mean like, you know, obviously the allies to see if the Nazis during World War II and there's all kinds of spy versus spy deception, sabotage, etcetera, versus the Soviets, you know, if it's another tribe, then people will do what they want to do. And what they feel is right for their tribe.


Politicization By Method of Camouflage (Gimmicks and Premium Bonds) (02:21:21)

They'll justify it that way, right? And a lot of that, the trillion dollar coin stuff comes from make sure the Republicans can't hold us hostage, you know, and in fact, if you see this article, Death Ceiling gimmicks, this is exactly what I'm talking about in terms of the evolution of camouflage. Okay, there were two courses of action that he's stating were equivalent minting a trillion dollar coin and premium bonds trillion dollar coins, even somebody without any finance or knowledge is just facially ridiculous. It summons a visual over here premium bonds immediately people's eyes glaze over. Oh, that sounds maybe good premium bonds, right? And now you need to go through a long explanation of what they are. But notice he's agreeing that they're equivalent in terms of their function, but natural selection selected against the trillion dollar coin because too obvious and it's selected for the premium bond in his kind of thing over here. Does that make sense? Well, what it does in that I understand the words coming out of your mouth, but I don't yet understand why a premium bond is actually like a trillion dollar coin because presumably that's why I'm giving you a bond. You have to read it. So, give me the punchline quickly, but first let me say for those that don't understand bonds. So I'd be buying a bond because I think that it's backed by the US government. I'm not going to lose my money. If I hold it to maturity, I add a minimum get my principal back and I may get some sort of return for buying that bond. So 1% in a low environment. So that seems okay because you're asking me to give you my money. Basically, I'm going to loan it to you. I'm going to buy that debt. But you have to give me my money back. Whereas in a trillion dollar coin, you're just making it up. Yeah, but basically the point is I can explain how premium bonds work and this article does, but actually that gets us into the 100 IQ trap, right? Where the whole point is that crypto is admitting that the trillion dollar coin and the premium bond are equivalent, but the premium bond is harder to explain and that's why it's a more likely path. And this is exactly how the camouflage evolves. Do you understand? Okay, let me see if I understand. Yes, I understand the camouflage part, but let me understand why. I'm going to take my best guess at why they are the same. They are the same because the debt that they created, they create out a thin air. So I'm buying something that isn't real. I'm in a wily coyote moment of, "Hey, I said this is real. You can give me money. It's all good. And I'm going to give you that money back." The second guarantee is because I will print the trillion dollar coin in order to be able to pay you back because I'm just printing the money to make sure that I'm back. There are two different ways to work around the debt ceiling and have arguments that you're not actually violating the debt ceiling thing, but still essentially creating your money, right? And so that is, that's how functionally they're covered. I mean, you can read it like, you know, I can explain it, but the point is getting yourself mired in that complexity. I mean, you can't. Okay, what are they doing? They're issuing a new note with an interest rate that's far above market and they're selling the debt instruments for more than their par value already. It's like eye glazing. You have to actually go and diagram this thing out. And that's the point.


Wall Street crimes evading scrutiny: Motivated manipulation (02:24:41)

It's a vol camouflage to give you another example just to, do you see this video clip that I paste it in? More Quebec securities, subprime loans, tranches. Basically, for anybody watching the, or just listening to the podcast is basically that financial instruments are designed to confuse you. Yes, this is a clip from the big short in a totally different context. The point is you could headline it and you could say, Hey, this number of people who got a mortgage like this have gotten bankrupted in the future, ahead to declare bankruptcy, or they lost a lot of money or whatever, because this teaser rate is actually a terrible thing and your rates are going to go up and your payments are going to go up. Or they could say, Look, our teaser rate, only 995 and they could just sell it. And so when you're selling, I mean, the thing is Wall Street and finance, as opposed to other sectors, like, if you're producing, I don't know, bananas. You're selling the bananas and you're trading a good, right? The other person is buying the banner for consumption value and utility value, right? But when you're buying a financial instrument, I'm not saying that it's always bad. Sometimes it's okay, right? But often Wall Street, it's something which is zero sum. You know, for example, you sell a stock and it's going to go up or down. And it goes up, then the buyer is getting a better deal and it goes down, then the seller is getting a better deal. So each party, you know, is a question which is like, how are you screwing me, right? That is what the Wall Street guys ask each other. You know, you've probably heard that before. I haven't heard it said like that, but that is not at all surprising. Yeah. And the difference is that when you go and you buy banana or whatever from the grocery, like nobody's screwing anybody, right? That guy can produce a good. You give some money and both parties are happier, right? That gains from trade. In the stock example, I'm not, again, it's possible that you sell the stock and it goes up, but you need liquidity at that timeframe or good, you know, like I'm not saying, I'm not pathologizing every single financial interaction like that. I am how we're saying that there's a greater degree of zero sum behavior there, much greater degree, right? And because of that, that culture has evolved and the contracts evolved, it's easily spotted. Okay. If it's obvious how a bank a is screwing bank B, then bank B spots it. You see what I'm saying? If however, it's camouflaged in such a way, then bank B doesn't see the fine print, but bank a can be like, you agreed to X, Y, W and Z. We got you, right? So each party is kind of weaponizing the contract system to try to fool the other guy into getting a worse thing. You know, this is dramatized in the movie margin call where, you know, the guys were fooling their counterparties into buying these assets when they were saying that they were more valuable, triple A mortgages. You remember that, right? And so let me come back. So the point is, the financial system is set up to deceive you as to what it's actually doing. Hence, you know, Bernanke, for example, years ago, talked about how quantification wasn't printing money, but then more recently Powell admitted that it was, right? Just to show you those two clips. I always try to have citations for everything I'm saying.


Jordan Schlansky (02:28:24)

Yeah, man. I have to say that's one thing. Like you're the way your brain works is terrifying. I don't know how you remember all these things that they exist. First of all, and that be that you can find them as quickly as you can. Yeah, I tweeted about that when I was researching and I was like, what the hell? Your memory is prodigious. Is that like a thing you, you, when you think about your own identity, is your memory being like freakishly robust part of your self identity? I don't notice it. It's like, I don't know. It's like your ears or whatever, something like that, right? Funny you should pick ears. First of all, I noticed my fucking ears because they are so big. And then second, I noticed my memory because it is so shoddy. When I, yeah, I, when I look at how much you reference, I have to believe that you, you remember a disproportionate amount of what you encounter or you have a time machine or something and you have more hours in the day. I don't know. But it is, uh, my theory. I should remember a little snippet. It's like a little hash and then I can look it up, right? But, um, but partly it's, I've got, it's kind of like, I've got a story and it's like a clothesline and then I can hang things off of that, you know? So it makes, it's almost like remembering song lyrics and you can, um, you can play it front to back, but it's not initially random access, you know, prompted recall. Anyway, here is, uh, Bernanke, once again explains why QE is not money printing.


Banks may lie or dissemble (e.g., about money printing) (02:29:47)

Okay. And then after, so lie or they'll dissemble or they'll convince themselves it's not money printing because we intend to do quantum tightening later. So we're not introducing into the system permanently and you don't understand. You're not sophisticated, right? And of course this fiscated, the 150 IQ was to say, well, you're never going to be able to tighten this Ponzi economy when you started. That's exactly the problem we're running into. We have had 20 years of just absolutely systemic economic fakery. Okay. Just to give you some examples, Bernanke talking about how the quote, great moderation, right, means that macroeconomic volatility is over, right? Meaning, you know, there's not going to be any more fight. We've solved macroeconomics. He was basically saying this in early 2000, right? Chaney saying definitely. The thing is when they really, they really have gotten rid of that volatility. So my central question is, does it break at some point because they really have reduced the amount of volatility tremendously. I disagree. I mean, like just the 2008 crisis, 2020 COVID, that's significant macroeconomic volatility. Yes, but compare that to 1929, man. It's like it was devastation. Okay. But like what he was talking about was there wouldn't be a financial crisis, right? Like he's like, we solve macro. There's no business cycle. That's what he's talking about. Okay. There's no business cycle. That isn't true. But let me give a little bit of the totality of it. The great moderation, we've gained macroeconomic volatility. Chaney saying deaths in so matter. Bush and Clinton blew up the mortgage bubble in a bipartisan way. I showed you those before. In April, 2008, Bernanke says, we might see a mild recession five months before the collapse of Lehman and certainly 2008 was not a mild recession, right? The reason to see is 2008 crisis. Okay. So he said this before the 2008 crisis. Yeah. That's my point. It could be a mild recession. That's not what it was. It was far, far worse than that, right? Right. Yeah. Yeah. Yeah. Here the radius in 2008 calling some. Yeah. This thing, the great moderation was before the financial crisis. He was like, we showed it. I still think he has a point, but fair. So if he's saying that before, when he's still pounding his chest saying that there is no such thing as macro, basically anymore. He's basically saying we saw macro. It's all done. It's a little bit like Rutherford saying, we've solved physics. There's nothing left before quantum mechanics. It's like, yeah. Yeah. Yeah. Yeah. But I would like to quote, "Bology" for a second. Sure. So maybe you've heard of "Bology," right?


Inflation Vs. Short-term Stability (02:32:29)

So an idea that you have that I think is really brilliant is that, okay, so give me, give me fiat currency. And what I'm going to do is I'm going to rob from you constantly, but just a little bit. And by doing that, I'm going to be able to keep it stable. So I think that what you're doing to the currency also applies to the macro economy. So I think that 2008 in any other time period is 10x that event that I actually was not saying that it wasn't difficult. Sometimes, you know, there's like an evolved function of something where people don't know exactly what that institution is doing and their verbal defenses of it are not actually what the function institution is. It's like, what is one of your organs do? Could you explain it verbally? It just does that, right? It's kind of evolved to do that, right? And your point is you're actually citing me on this and it's true. And I thought you might bring that up, which is one way of thinking about fiat is the dollar has had that long-term decline. You know, the decline we're talking about, like the inflation cost of dollar over time, right? It has a long-term decline in return for short-term stability, right? And like essentially what's happening is they're borrowing from the future, they're printing, you have this long-term decline of purchasing power, but it's like relatively smooth during the period so you can plan on a short-term basis, right? And the thing about it is that's actually sometimes a valuable property to have something that is flat and it's not going to oscillate that much in terms of purchasing power over the short-run as opposed to something like cryptocurrency, which goes up and down, percentage, or whatever, each day, right? Bitcoin has the opposite set of trade-offs in a sense where it's appreciating over the long-run, but has a huge amount of volatility in the short-term. And you could imagine that you could have some flatcoin where you embrace that as an engineering constraint and you had a basket of goods and you had a reserve of funds and you tried to maintain the price stability of that flatcoin against a basket of goods, which you couldn't necessarily do if there was a true shortage. If you tried to maintain, let's say, the price of this, you know, flatcoin against grain and so there's a grain shortage, then no matter what you do financially in the physical world, that supply is gone. So the price is going to rise, right? But the point is, though, that yes, under some conditions, it's possible to have a long-term decline but short-term stability and a huge crash at the end, right? Do you know the concept of a poor Mises, have you ever heard of that?


Future Predicaments And Theories

Poor Mise (02:35:11)

Oh, yes. A little bit of bad does a little bit of good. What's interesting, I would not have expected you to bring up poor Mises in this context, so do tell how we get there here. So this is kind of the graph, you know, like, and so it's kind of like if you have too much volatility, yeah, you're dead, right? But if you have too little volatility, well, it's actually also worse than having some volatility that you can adapt to. It's like exercise. But too much exercise you're dead, if you have too little, then you're basically going to decline and die, yeah. That's right. But in the middle is kind of the sweet spot, right? And so what a lot of the system is done is, and this is actually a broader point, in many ways, we have the eternal Western present, right? Over America is holding onto the present, while the tech libertarians are in the future and the conservatives are in the past, and the Chinese and so on are both like the future in the past. They think of themselves as like the Chinese Empire, right? So the Western present is hanging on with fingernails, and you can see it in the financial system where it's like bailing out GM and 400-something companies and the S&P have no growth and they're all in tech, and they're trying to prop up these existing institutions. But you can see it also outside the financial system where you have 70 and 80 year olds running for president, and you have all the Hollywood remakes and Top Gun Infinity, and we're going to do a Cold War again, and it's all this stuff, which is just referencing this increasingly distant, faded glory, and just trying to keep the current system together and to keep the present going for as long as possible without adapting to the future, and then you get just the whole thing just snaps and breaks, right? And it just like gets washed away. It's similar to in my view that the current situation is similar in some ways to before World War I, where you had the kings and the nobles, you had the monarchies, and yeah, there was constitutional monarchy, there were still absolute monarchies, and that world seemed like it was eternal and it wasn't going away, and maybe it was changing and changing very slowly, but under the hood, all these political movements, technological movements, industrial revolution, all this stuff was bubbling, and then in a cataclysm, like the modern world arose, right? And we kind of saw some of that during COVID, there was a lot of change that happened during COVID in a year. That became like the year that the internet, it was the internet first, right? For example, every meeting, now you can do a remote meeting, digital currency rose, like all kinds of things, there's civil conflict in the US. I think in many ways 2020 was a preview of what we're going to see in terms of, like just like 2008, it's like a preview of what we're going to see.


What does the future look like? (02:38:11)

It's like an appetizer for a main course of a lot of change happening at once. All right, you have a very clear thesis on this. What is the change? What does the future look like? What does the future look like? So I mean, I have a thesis, and of course, look, I could be wrong and so on, but the future is not going to be wrong. And let me also give some optimism, whatever you're still, let me see if I can say it in a few sentences. Optimism or whatever. All right. All right. So the few sentence thesis is G7 countries are actually running out of money and will attempt asset seizure in the future, whether through inflation or actual seizure. That is so dark. That is so dark. Where's my optimism? Okay. I'm getting to that. That's terrifying. I don't know that people understand like how gnarly seizure is. So first of all, I have family in Cyprus. And so watching this happen where the banks just like we're taking your money now. Right. Crazy. Anyway, keep going. So there's going to be some kind of seizure, agreed, terrified, but agreed. So the reason, whether it's via inflation or actually seizure, I mean, the reason is like, um, people didn't expect, Dahlia's principles that changed the role order, it came out, I think right before Ukraine and the rate hikes, you know, and it seemed obvious that the path they were going to take was just going to be printing a ton of money. But sometimes the path they take is a non-obvious one and it may just be hiking rates to the moon and you're just watching the system collapse and, you know, doing selective, we don't know exactly how the thing will unwind. Sometimes things surprise you, right? Probably likely it's going to be printing. Point is though, G7 countries are going to have a real problem and they're going to be harder for money. And then a lot of the world hinges on whether or not, um, the G7 countries and China can seize digital assets. If they can, that's like one branch point in history. It means that you have like total states in the CBDC and so on and so forth. If they cannot, uh, then you have a different branch point in history where it means that communities can now, uh, basically have digital gold or cryptocurrency and crowdfund bits of territory where they can have their own startup societies and eventually go to call network states. Okay. And then you'd go back to the future of something more like the 1800s where you could get a plot of land and you could build a town or something like that or even, you know, the Alaska Purchase, Louisiana Purchase, things of that nature where their sovereigns would sell land. The real, the branch point is fundamentally will asset seizure be possible in the digital world. And the biggest risk factor for that is actually Apple, Google and Microsoft because they have operating system access. And that's actually, if I think about what I'm most concerned about, it is the fact that Apple has software update and Google can, you know, get into your Google Drive and Microsoft, you know, has windows and if ordered by the state, in theory, they could scan your hard drive for private keys and then pull your digital assets. That is to me, one of the most important problems that's coming up in the next X number of years. You might say, well, that sounds kind of crazy, biology. And let me see if I can motivate that a little bit. In 2010, remember we talked about the Arab Spring, right? In 2010, the Arab Spring, it happened. And you know, people knew that Twitter and Facebook had been a component and literally like the overthrow of countries. They had political importance. Remember that? Oh, yes. Yeah. Yeah, yet still in 2010, 2011, if you had said in 10 years, the most important political issue in the world, or at least for a few days, will be whether the president can tweet. People who laughed, right? Come on.


All politics becomes crypto tribalism. (02:42:25)

Because they thought that social media is destabilizing political impact, that it's political importance with something that happened elsewhere, right? That really wasn't a big deal at home. We have a culture of free speech, who cares. Twitter is still calling themselves the free speech between the free speech party.


The most important question in the world. (02:42:45)

All that stuff is early 2010s. Now what's happened over the last 10 years, you know, from basically, let's say the 2010s, is all politics became social media over the 2010s. And in my view in the 2020s, all politics becomes crypto tribalism. Why? Because again, taking that Twitter analogy, just like you went from Twitter being acknowledged to political importance to being the main event of all politics. And every politician is on Twitter first, and they think about Twitter first often as when they do something. They do a bill and they're thinking about it for Twitter, right? I don't think that's an exaggeration to say that. I mean, Twitter didn't just, the 2016 election also really wasn't about Trump. It was about Twitter. Twitter was upstream. It elected Trump. It elected Bolsonaro. It got Brexit through. It was essentially a parallel media channel. And that's why those elections flipped. That's also why there was a counter attack on Twitter from 2016 to 2022. And it looked like the Geneed Veean partially pushed back in the bottle, but now along then free Twitter again, and we have digital glass. Okay. So with that whole story where even as big as social media had gotten to hundreds of millions of users, billions of dollars, public companies overthrowing governments in 2010, people still didn't think it was going to be the main thing for the president of the United States of America with me so far? Yep. Okay. So in the same way in 2023, where cryptocurrency is, is it's a trillion dollars. It's hundreds of millions of users globally. It's quite a few billionaires, publicly traded companies, and even perhaps more importantly, every single bank, financier government in the world has heard a Bitcoin. And many of them have launched CBDC programs in part, or in whole motivated by the competitive threat of cryptocurrency. Okay. And El Salvador has adopted Bitcoin as an actual currency in Panama, and I think Central African World Guard considering it. And so it's kind of like the Arab Spring, the sense of there's like, there's already a political proof point of cryptocurrencies importance. You know, there's the Wyoming Dow law. There's the Tennessee Dow law. There's Texas saying Bitcoin shall not be infringed. There's, there's all, you know, Colorado, except scripted for taxes, blah, blah, blah. There's all this stuff that's happened. And yet still, if I said that in a few years, one of the most important questions in the world will be does government have enough cryptocurrency to finance its operations? That still seems unrealistic. Okay. That's still something which seems distant. Oh, the U.S. government is going to count how much Bitcoin it has, right?


Ben Bernanke talking about gold. (02:45:31)

The looming question though that I hope you'll address is some part of me is like, yeah, that sucks. I want the government to be able to print more money. So, right? Right. And, and I, the good news is I'm learning about this stuff. So enough of me is like sort of old school that I still remember being blind to all of this and enjoying the magic trick. And so it's just that it breaks at some point. Anyway, go ahead. Today, if you look at Ben Bernanke talking about gold or you hear anybody in the establishment talking about gold, it's with an eye roll. Like, oh, stupid gold bucks, right? Bitcoin, it's not taken seriously. Digital gold. It's just not taken seriously. It's thought of as maybe, you know, if they're against it, they're against it because they think it's, oh, maybe it's instability or something like that. But they don't think of it as like a threat in the same way they thought of Christianity as a threat or, or capitalism as a threat. You know what I mean? They, or nationalism, you know, like those are things that they, they think of as a threat. Gold is thought of as a stupid curiosity, right? Not actually something that could disrupt the system. That's not how it was in back in the day. 90 years ago, doing like the most important thing in the world, basically of 1933 to 1935, like front page news, like 9/11 or the financial crisis was the gold clause cases. Okay. So the gold clause cases were essentially the question of whether or not the US government under FDR could essentially default on its obligations and say, you know, the gold clause said the government will pay X amount of gold to somebody. If, you know, like a, like a bond, it was basically a clause that was there to prevent inflation, right? I could ask for my payment in gold, essentially.


Executive order 6102. (02:47:25)

Okay. And FDR passed an executive order 6102 saying everybody had to surrender their gold. So that seemed to be incompatible with the bonds that had been signed well before that said the US government will pay you in gold, but FDR is saying I will seize the gold. Okay. These went, there's a bunch of cases of different kinds that all got collected, went to the Supreme Court. And these, this was like the big event of like 1935. Okay. Everybody cared about this. It's about a forgotten chapter in America's economic history. Okay. And it was a huge deal at the time. Okay. And the thing about it is gold was taken extremely, extremely seriously because they had inherited the system. They were trying to build a new one. Fiat and gold were fighting at that time. So the thing about this is when you go back and you, you kind of read about that, you're like, whoa, just the, it's just all gotten to fill the memory hold, right? The emotions on it have, have totally changed. Nobody even remembers it, right? And yeah, I want to show you something. So yeah, whenever you're pressing up on a hundred years on something, the cultural memory is just not there. Nobody has emotions. Nobody's even grandparents have the emotion around that thing. And so us trying to capture that. It sounds very true because remember, you know, the Civil War, remember World War II, right? None of that has resonance anymore. Like this is going back to your very statement about when you have to found it versus inherit it. Even the World War II, we've got documentaries and stuff. Nobody has a sense of like the greatest generation anymore. Nobody has a sense of what they gave up. I don't know if you've seen that video of the World War II veteran crying because he's like the things we had to do, the people that died, the things that we sacrificed. It's all for nothing. It's for nothing. Like that shit was heartbreaking to see that guy. That's a guy with memory of what it means to go to war who watched the guy next to him get his brains blown out. You know, like imagine your friend next to you get shot. There's brain and blood in your mouth from your best friend. Like that shit is very real to you. And so now all of a sudden like, hey, you know what happens when things go wrong. So I do feel like that that is a big part of it to think that people from 1935 are going to have like some visceral sense of what it means when the government is like, I'll take your gold now. And you know, I know part of the punchline of this where it's like, I'm going to take your gold. I'm going to buy it back at whatever 70 cents on the dollar or I'm going to buy it from you at 70 cents on the dollar. They literally just sees 30% of your wealth. It's bananas.


History is running in reverse (02:50:15)

That's right. So I, well, yeah, this is like a dilution of 70% by one measure. But yes, the case is dominated the news throughout the period. On January 13th, Elliot Thurston, you know, wrote, "Rarely a feather has a Supreme Court of the United States confronted issues of larger import." 1935. On the morning after the decisions, the near times ran and five front-bridge articles about them and they were the overwhelming focus of the news and business sections. For perspective, the number of articles devoted to the more closely resembles that of historic moments like the moon landing or 9/11 attacks, then it did other major Supreme Court decisions such as Roe versus Wade. Okay, the phrase "gold clause" appeared in more times articles 49 on the day after then poultry, minimum wage, abortion combined on the days after Schechter, West Coast and Roe, right? Academics also touted the case as magnitude and import, right? And so, you know, this is taking their place among the great landmarks of American constitutional history. So this is remarkable. Dude, I think we're about to live through this again. I don't know what you think about this. But when I watch the posture right now towards crypto, this feels like capital controls in the making that they're revving up, I mean, with the requested freeze of Binance US assets. I don't know how that's going to play out, but man, that really starts to smack of like, "Hey, we're doing it. We're doing it to protect you. Don't worry." But like PS, we're going to freeze your assets. It's like what I'm sorry?


Centralizing technology was rising for hundreds of years (02:51:44)

That's right. So the thing is, so the one of the macro freerium works I have is, well, it's not exactly reassuring. It is that history is running in reverse. Okay. So if you think of 1950 as peak centralization with one telephone company and two superpowers and three TV stations, you go forwards in time to 1991, the internet frontier opens, backwards in time to 1890, the American frontier closes. Backwards in time you have COVID-19, backwards in time Spanish flu. You go forwards in time you have the tech billionaires, backwards in time you have the captains of the industry, the robber barons and so on. And this is true. There's lots and lots and lots of events like this. I've got like 50 of them in the networks to take book. And they get really amazing and detailed. Like for example, you go forwards in time and China is a senior partner in the China-Russia relationship. You go backwards in time and the Soviets, the Russians are the senior partner in the Russia-China relationship. You go forwards in time and you have an Indian origin and Pakistani origin guy debating the partition of the UK because the guy who's the senior official in Scotland is a Pakistani origin guy and the British prime minister is Indian. You go backwards in time, you have British origin guys debating the partition of India. You go forwards in time and you have the New York time siding with Ukraine against Russia. You go backwards in time, you have the New York time siding with Stalinist Russia to choke out Ukraine with the Walter Duranty articles where the New York times covered up the Ukrainian famine. And that's like remarkable where some of the same hinge points in history so specific are occurring again with the opposite outcome. A major one that's happening is there's actually a confrontation between journalists and founders, entrepreneurs and reporters in the early 20th century. That was like Ida Tarbell and all the "muckrakers" went and attacked Rockefeller and all the captains of industry, demonized them, laid the groundwork for the trust busting and essentially the government to take over and quasi-nationalize a bunch of those companies with regulations and so on and so forth. So Ida Tarbell and the journalists beat Rockefeller and the founders in the early 20th century. But now there is a similar clash that happened from 2013 to 2021 between the media and tech founders but now it looks like the founders won that battle on as Twitter and we have the all-in podcast and we have all of these sub-stacks and so on and so forth. So we're seeing some of the same confrontations or conflicts. It's almost like you've seen these really complicated origami things and they fold and unfold but you see some of the same faces as they unfold and fold. Do you know what I'm talking about? So I can't understand it all. This is such a huge thing that I can't pretend to understand this whole way that the world folds and unfolds in this way. I'm going to push you on that though because I've heard you bring this up a lot and your punchline is always that there's something here but I don't know what it is. So the two hypotheses that I think explain this are first that centralizing technology was rising for hundreds of years going into a peak in 1950 and so that's like obviously the nation state itself. But I should say obviously. Most people don't know. Do you know what was there before Germany and before Italy and before France? That's a mess. That does not look rational or logical from the standpoint of a map. And the reason is maps are actually like sophisticated maps are relatively new technology. That's to say they weren't there for thousands of years, hundreds of years. You know a map is a thing about how hard it is to make a map. You have to be able to travel long distances pretty quickly. You need serving technology. You know like a straight line on a map seems like a small thing but there's like mountains and swamps and all this crazy stuff in between them. So like map making if you think about how you'd make a map and make it accurate it's actually a pretty non trivial thing to do. So on a map this doesn't look like all that rational. What it was organized by was not on the base of the lands but the mines. On the base of communities of like mind.


We have a constant tendency to bundle, unbundle, bundle, unbundle (02:56:15)

What I hear you saying is that we have this constant tendency to bundle, unbundle, bundle, unbundle. And so here we're looking at these different states that were unbundled for a long time. We have had a moment of bundling and now as a part of the thesis around the network state we're going to see this re-unbundling. Now what I want to only in the west. In the west. Yeah mostly. And I think the reason is I think the future is to decentralize west and to centralize east. Like the east meaning Russia, India, China but especially India, China and then you know a lot of countries have gone through social economy. They're like on their state capacity increasing arc. Things are getting better like roads are getting better highways are getting better, infrastructures getting better. They're on their increasing arc. The closer you are sort of blue America and the G7 you're on like a declining arc. That's so crazy man. It's the opposite of the 20th century also that's the other part right. So the first part is centralizing technology. So just to continue my point right. Why would we see this history running in reverse? Well going into 1950 you had mass media, you had mass production, you had mechanized warfare. You basically had to control huge swats of land and natural resources and you had to team up to not get beat up right. And that's why Germany was all these like little small principalities but in part due to the Napoleonic Wars like basically you know the concept of roll up in business like you take a bunch of small things you roll them up in the way of commerce. That's what the nation state was. It was basically like you know there are all these different groups in like the vicinity of what we now call France and many of them didn't speak what we now call French and after the French Revolution they're all put together, they were all educated in the same language, they were unified in the same way and this is actually to you know they're bad parts of the French Revolution, many bad parts and people have written about that. Namely the beheading. Yeah the beheading and so on but what people don't ask is why did the left, how could it work in the sense of after all that internal chaos and anarchy how could they generate a military that could just go and sweep over everything else right to the same extent. You have a strong leader. I'm very curious what do you think because researching Napoleon and his rise to power this is my thesis on history and people don't pay enough attention to history as a PSA.


The blind spot the right has on history (02:58:43)

When you have like the bundling as you were showing Germany I was like yeah the only way to bundle that mess is if you have a strong man that comes in and like starts throwing his weight around and he's more intimidating and he'll like he won he's creating orders so let's not discount that. So he's bringing order to something but I'm going to guarantee that he's doing it in a way where some people are just getting their next step on like even how Napoleon came to power it's like you won he was truly a military genius and so he could go in and bring the riches back and so people like whoa maybe this guy is better than we thought and as soon as he started losing then he was ousted but if you're on a tear and you're able to intimidate back down your own people and go abroad steal riches win wars man eat like now let's really get into the crazy stuff the fact that Hitler the rise and fall of the third Reich fascinating book everybody should read it the fact that he was able to talk oh god what was it called Checcos love in you oh god I forget the original name of what is now the Czech Republic always for some reason he talked them out of their country there was no shot fired he just literally talked them out of their country so anyway it can be a pretty dark period when you unite the bundling process here is something that might compliment this view on the like the the strong man part of it is definitely it's definitely a piece of it but this is actually something I feel the right has a blind spot on which is to say that and this is this is a broad generalizations right but typically the right things about things in terms of heroes and individuals and the left things of things in terms of institutions and ideologies so you don't just the thing is for something like you know Napoleon and why at least my my teeth on it look I'm not


The left vs right approach to hero-making (03:00:25)

a really a polyonic horse but what I think about it is it's not just that there's a strong man there is a strong ideology what I mean by that is Napoleon in a sense benefited from the fact that they the crazies of the French Revolution while they'd been crazy they had unified France and their propaganda they had you know essentially rationalized this whole thing they'd smoothed it all out and everybody was under you know the control of this centralized government and and so the the base of all these people who would be in propaganda is actually going like I'll double check you know all the things on this afterwards but essentially that was something it's a little bit like um Mao did a lot of terrible things I shouldn't say but did a lot of things and unified China right so yeah a lot of things and unified China but true and he smoothed out all of these issues and so on and so forth and then a right of center person could come in and like Ding Japeng was a capitalist and then take that unified thing and then you know implement capitalism on top of it and you know it turns out that it's kind of hard to unify a gigantic swath of land without using both left and right tactics because the right is like economics and you know the military but the left is like propaganda and ideology and even though it's not called this way religion right um it's um it's like the software that all these people are running in their heads why do they think of themselves being part of the same people well you educated them and you brainwashed them and you um you know you instructed them and you taught them and you made them do x and y and z and the thing is normally the right libertarian thinks about everything in terms of okay here's a fair trade you pay me x and I'll pay you y and so on but the left authoritarian thinks I'm not going to pay anybody anything they're just going to do it and you know what if you can pull it off it really really scales right like you have no unit cost everybody installs the same software in their head they're all basically educated to do the same thing and they have to do it and you're not going to pay them and in fact they're going to pay you right if you can pull it off you can unify this absolutely gigantic swath of territory right and that's an really important component of it it's not just uh you know the the warriors it's a priest it's um it's not just the swords it's the words you know you you need that kind of unifying ideology and uh I recognize it's an idiosyncratic way of thinking about right and left I talk about this at length in the network state and book but that's why it's not enough to just have a strong man what I mean by that just to take a reduction out of zerdom I know it's not the sense of what you mean it but if you just have a guy who comes out of the weight room it's a strong man why do people follow him right he has to actually be a leader in some sense he has to have um the ability to run an organization he has to have some motivating ideology you know this is also the kind of small version of this it's not that small but like somewhat small is like a founder who's got a vision for changing the world as a


The exception that proves the unification rule (03:03:55)

company right yes they have the right aspects of you know hierarchy and capitalism and meritocracy or whatever you know like stereotypically right they also have the left aspects of a mission and um like often in a egalitarian dress code and we're all in it together against this you know oppositional kind of thing you know like a like an insurgent or revolutionary movement right which have historically been left things and so I think you kind of need both and anyway coming back up so the point is that um for 500 years going into 1950 ish you had this centralizing tendency and um this was something where you had small city-states couldn't compete in fact one way of showing that the exception that proves the rule do you know this country called San Marino oh yes I've heard you talk about it yeah that was the protective of like a guy who becomes king and then he like yeah wow you really keep there you really have done your research that's right yeah so um yeah so Garibaldi when he was unifying Italy um San Marino at least has the story has gave him refuge and so he let them be sovereign and so you can see like this duck bill platypus you know this missing link that exists to the present day San Marino is like a piece of what the past was okay and it's like surrounded by Italy it clearly is like it's like 30 000 people or something like that but it's maintained its sovereignty through the years and you're like oh why is that not just a piece of Italy it's like it's like a tiny town really you know Italy it's a totally fine place or whatever right um and their UN membership is very valuable to them and and whatnot but now you're like oh okay that's what the old world was before all got rolled up into these gigantic centralized nation-states how do I do things get rolled up in the nation-states is defense and production and scalability and so all these centralizing tendencies okay and so what you got in 1950 was a very atypical thing for the whole world like you had this gigantic American empire with hundreds of millions of people and you had the Soviet empire with hundreds of millions of people the Chinese you know india these were just like a relatively few number of states and many of them were


Political Theology And Technology Decentralization

The decentralizing arc of technology and society (03:06:04)

running like just two operating systems right capitalism and communism so very very very centralized world with lots of the you know differences of different cultures and so on all just got steamrolled paved over and the best version of that was everybody watches i Love Lucy in the US at the same time on the same channel you know and they're all like just the same soft frizz and soul in their heads i love Lucy you know like this right and the worst is you know um like Mao's little red book or uh you know like Hitler or Stalin or something like that right that's like you know just the propagandizing right and so uh point is that right around that time what's interesting is sometimes at the very peak of something something is invented so transistor was invented right and so you go from transistor to the computer you know mainframe and the personal computer and uh you have cable television and you have the internet of course and um the smartphone and cryptocurrency and for last 70 odd years we've been in a decentralizing arc that is faster in my view than the centralizing arc is the decentralizing arc is that is that pathological is it a breaking apart inappropriately or is there something good here because you have a picture of how this can become good but it feels like it's born out of rot if i'm completely honest it's it's both and right it is something where you're like um for example blockbuster is an example of a company that was set up under a certain set of technological assumptions like home video rentals and so on that turned out to just be a window in history that was within our lifetime and it rose then it died right it rose you know when it was a technological pioneer on the basis of like home vhs when that was a breakthrough and then it fell once streaming became possible right we saw that within our lifetimes with me so far right yep so you think about the giant centralized state and it's like blockbuster where there was a point at which it was writing the curve of technological innovation and it was just crushing everything in its path and now the technological wave is against it and those ideologies that seemed unstoppable when the technologies favored them those organizational structures uh you know for example blockbuster had physical stores all around the country and it had late fee policies its entire business model its organizational culture was based on this DVD that you come back home it had popcorn that it sold right all that stuff gone with Netflix Netflix doesn't sell popcorn Netflix doesn't have in-person stores Netflix just streams the video to you it doesn't have late fees all every aspect of the business model got just totally destroyed um by technology and we saw that in our lifetimes right and you just now have to take a wider lens and you think of that having not just two companies but to countries and the thing is that we don't usually found that many countries um there actually have been quite a lot that have been founded over last seven years it's a very counterintuitive thing there's an idea here that i find very interesting so uh you have this force working against us where or for or against us where we're centralizing decentralizing but what feels like at least in the um the example that i can think of certainly with the u.s uh maybe even with mau definitely with blockbuster is there there is a category error that's made and the category error blinds people to um the path to the next societal movement so uh take mous china take blockbuster which i did not expect to be drawing a parallel between these two but i think the same thing is happening and then i'll bring it back to the u.s which is why what i'm really thinking about obviously because i live here so um i'll just can jump in for a second the corporate analogies might the corporate analogies might seem trivial but they're not because they're some of the largest scale experiments we can run within our lifetimes you know they're you're talking about millions of people billions of dollars and they're founded they grow to maturity and they die over 10 to 20 to 30 years right um you you cannot run experiments that are much longer than that within one human lifetime that's why corporate history is actually very useful to study because you can relate to it to a greater extent whereas history books are farther and more distant you know go ahead yeah and i think they're actually a really good example of the network state uh which for people if they're trying to grasp at what that is like imagine a corporation but instead of it being a corporation you're basically it's culture so you come together for cultural reasons all right let me let me finish this yeah i'll come back to that go ahead yes go go wait so all right so when you look at uh categorical errors i think they are the most dangerous error that you can make because it is to fundamentally misunderstand the nature of the thing and so if you're a blockbuster or Kodak and you think the nature of the thing is i am selling you the experience of coming in and selecting a dvd and going home with it uh you're coming in you're buying popcorn etc etc uh and you don't realize that the actual category of thing is i'm just entertaining you in the way that you want to be entertained or i'm removing friction from the entertainment process so instead of having to go to a movie theater you come here and you can pick whatever movie you don't have to worry about star times etc etc so if they had understood that what their job was was to move remove the friction from the entertainment experience then they would have seen oh Netflix does that even better so there's even less friction you you know in the beginning for kids that don't know it's like used to ship the dvd back and forth in the mail but you could go online and say here the next three or five depending on which thing you signed up for videos that i want as i send them back to you you send me the next one so you can watch whatever you wanted there was no more late fees etc etc okay so you take mao mao organizes everybody steam rolls is the right word he steam rolls over everybody literally you can't imagine how sinister and evil this guy was read mao the untold story it is unimaginable


Return to category error with democracy. (03:12:09)

that a human being could do that to other human beings absolutely insane so he galvanizes this group of people and he thinks that basically terror is the organizing principle now he does give them uh ideology to cling to but it's really terror that works and you see him make these realizations throughout his life whereas the following regimes realize oh actually we can hold people together with ideology and by making them feel better now we're seeing sort of a flirtation with a return to the hammer and people uh can't let you step too far out of line but to your earlier point i don't think that they will make the category error of thinking oh you can just do the top down authority and you don't have to give them a better life because if if they're really understanding oh the nature the essence of running a government is you have to make people's lives better over time now their thesis is as long as you do it at the population level you can crush some people use that the sort of crushing there to keep people in line but as long as on balance it's better for people and it continues to get better everything's going to be okay so they're focused ruthlessly me using your words ruthless execution so that they're they're really able to make your life better and because they're really able to make people's lives better because they have not misunderstood uh they have not made a categorical error okay so china gets the category thing right they do well now i think misunderstands it the new regimes get it better which is why they've had prosperity in a way that mau has failed to do blockbuster makes a category error Netflix does not Netflix ends up taking over okay us us is now beginning to break apart and the question becomes are they making a category error or is this just the the reality of the human now to take this idea and look at it through the lens of what's happening right now is people making a categorical error uh i think that it's it suddenly becomes easier to predict what's going on so when i look at when i combine two things the will the power which we talked about earlier where i said my prediction engine starts working better when i realize that people have a will to power they're not necessarily trying to be good bad or whatever but they are trying to be in control they they want that will to power and then mix that with a category uh error that i think they're making which is that democracy is when a single party who is right has all the control and the category error there for me is that democracy works and creates a thriving society when and only when there is a respect of the tension between right and left and that this is where this is like the fundamental category error that i think people make certainly in america maybe all across the west that we're seeing play out right now is that there is a right answer and that right answer is compassion and there is a wrong answer and that wrong answer is the right and i'm saying it's pathology on both sides and it is only the tension between the two that works and so people have to mistrust their own emotions because everybody thinks their worldview is right and so the right thinks they're right the left thinks they're right not not disagreeing but let me give like a different lens to the situation one that's that i've thought about a lot actually which is um rebranding versus reinterpretation okay so basically words like democracy capitalism communism christian d are so capacious they can contain both x and its opposite for example christian d um was in the times the time of the romans it was like the slave religion the revolutionary religion that tore down the roman empire right and you know sooner or rich man and go through and i have an eadle and get to have it and the first shall be last and last shall be first and then after the dark ages and so on suddenly christian d was reinterpreted at that suddenly over time he was reinterpreted and fused with like a lot of the germanic stuff as uh as what Nietzsche would call a master religion so now justified hierarchy now you had the oxymoronic concept of a christian king which is like a left-right fusion right and you had things where you think about christmas you have um st nicholas sanichlaus and you have the main jersey in from bethlehem if you think about it sanichlaus comes from like these like northern european like these snow myths and so on and bethlehem is like the middle east and that's the fusion of two events that are like or two cultures that are five thousand miles apart you know right or whatever three thousand miles apart they're just totally different you know sanichlaus and and and bethlehem we think of them as being the same because they're like a fusion of ideologies that you don't usually give too much thought to um it's like it's like fusion cuisine or something like to have a fusion ideology the point is christian d contained both a revolutionary ideology and a hierarchical one which is just got reinterpreted and that's true of communism which was you know the revolutionary ideology of the 1800s and now where's the hammer and sickle flying the number one brand of communism in the world is the chinese communist party you know marxes you know communist ideology of northern europe where is it the most popular it's flying a flag on a warship in the south chinese sea okay that's where the hammer and sickle is just think about that right that meme that ideology made its way all all the way out there and it got totally inverted from a revolutionary thing into a hierarchical thing right uh thinking about capitalism like capitalism could be the agrarian capitalism of the 1800s or the industrial capitalism of the 1900s or the uh you know the information tech capitalism of today those are very different things even if there's some shared patterns you know um and then finally democracy right um you know democracy can mean like fdr styled democracy where essentially you know he ruled for four he ruled till he died right basically another way of thinking about fdr is he was uh the least bad communist or socialist dictator okay and uh to to to you know i know that sounds provocative but have


Misinterpretation of FDR & 4.0 (03:18:19)

you read the book uh three new deals basically three new deals reflection on rose reflection on roseville's america muslinis italy and hitler's germany how do you rule until he died he ruled for fortune silly died isn't that interesting that similar like stalin and the other dictators of that period right um he was he was the least bad of them but he you know he turned the government on his opponents he launched audits of them uh he forced their fortunes into trusts like you might after andrew melon and he belonged and so on um he ordered the gold seizures you obviously order the japanese internment people do know about that uh you know before he took power um yet there's a thing the the gay entrapment uh scandal um where basically um he you know this is a thing before became president where uh he had young men go and try to sleep with guys in the navy to try to find people in the navy regays to get them drunk out of the navy the this mit is written about this sherry zane is written about this right so he did a lot of crazy stuff right wasn't he wasn't as bad as mal in the sense of you know you didn't kill as many people domestically but he did order you know like the japanese internment firebombing gold seizures i use pretty pretty nasty guy in many ways right so henry wallace was uh fdr's vice president uh and um henry wallace was a soviet sympathizers he actually went and toured magadon which is like a soviet goulog and um was like hey this is great it's like the tennessee valley of thart right and there's a very close race for the vice presidency in 1944 because people knew that fdr was sick and it's a bunch of ballots and harry truman won on the last ballot and fdr just didn't fight it too much or whatever and truman was just like a cipher but the entire world was extremely lucky that henry wallace didn't become president in 1945 because had he become president um he was like a soviet sympathizer and he might have just handed over the entire i think the soviets and we all be under the iron curtain you know do you bring up um fdr in this moment because he's an example of somebody who's reinterpreting uh like all of our democratic values but actually twisting them democracy men fdr democracy men fdr relatively died democracy men fdr built a unit party remember that thing where it showed the uh the graph which had everybody voting together in 1950 and then they'd come up on the 2011 right yep so the counter argument to what you're saying is it's not that democracy works when right and left are balanced democracy works when fdr has turned into a unit party with no real differences right he squashed all the differences it's like it's like the kind it was like the communist party of china there's only one part right republican democrat were cosmetic ish differences and then they became but you're saying that's an interpretation of this versus what i would say to that is the reason that you're saying that it's good that the other guy didn't get elected is because it was already a perversion of democracy it was a reinterpretation that may you can people are malleable you can get them to buy just about anything good well that's the thing is basically i mean were there elections or elections did he happen to win every single one those elections yeah it was every single of those elections right do you ever do it in four terms right so it's only people who say oh it wasn't a democracy then right people think it's continuously being our democracy i mean you know a similar character you know lincoln suspended habeas corpus right bodor wilson um you know like it's a lot of these guys a lot of the presidents were you know did things that were uh you know were they quote democracy um not by not by what most people would normally think today um but but they preserve the brand you know and it's i don't even call it cynical it's it's like sort of beyond it's like it's like christianity as i said you know christian just has a long history and sometimes it means x and sometimes it means the opposite of x right and so in many ways today is ultra-democracy right it's like real democracy it's not like a single party that has some internal you know disagreements it is oh the the form is becoming the substance the form of elections is actually becoming the substance of boring tribes does that make sense you know like it does um and so you know one way you know like there's this guy uh who writes gray mirrors guy um courtesy arman and he talks about how like washington and lincoln and ftr were both all like resets where they just kind of reunified the whole thing after a fragmentation period and we're actually you know like um france is on its nth republic right and in many ways the uf s is actually there was like the 1776 1789 then there's like america 2.0 which is the you know the the bill of rights era and to to the lincoln era there's america like 3.0 and number now actually in america 4.0 and we need america 5.0 right 4.0 is like the fdr era with 10th of them getting repealed and so on meaning the 10th of them getting repealed was central government just asserting its power over everything i think there's some truth to this um i think uh what's interesting about this is it's not really specific to the person it was just a global technological trend at that time that you know people could execute these roll-ups uh and the ideologies that worked in the 20th century were communism fascism and uh fortunately democratic capitalism which was certainly the least bad of the three but those were three that worked to roll up huge numbers of people into this mass this fighting force now today in the internet era i think we're gonna have different ideologies that are optimized for the network as opposed to the state we're already seeing some of them um locus um is actually you know people have called workism similar to communism but you know if communism starts on the factory floor and there's a strike and it's about regional wealth locus um starts on the internet and there's a cancellation and a redistribution of status okay and so it's like a network first ideology because most people don't have an experience many educated people even many working people don't


Network first ideology (03:25:08)

have an experience of going to the factory floor and turning a crank and so on even working people are often like service workers or retail or or something like that so the entire experience of being on a factory like an assembly line paradoxically that's that giving people the training to go in physically do something fold into a foreman that actually helped the union organizers organize strikes because people are used to doing map reduce in the physical world right now today people are not used to doing that but you know they are used to doing they're used to hitting keys on their phone or their laptop and so any ideology in the west has to start network first it has to start with the keyboard and the laptop it can't start with you know in it it has to be digital first because anything that's a 20th century throwback is simply not the experience the ideology that works in the 20th century not the experience people say the exception is china that still has huge amounts of factories so they can still do 20th century like things where they have these giant military marches and these giant parades and 20th century industrialized gear and


The U.S. v China (and a love of transformers) (03:26:10)

so on and so forth because a huge much larger percentage of their population as the current experience of living and working in a factory right um that is just not the case in the US and that and the reason I say this is these are like sort of technological societal substructures that underpin what ideology is or ideology should be feasible okay so my question is when a 20th century uh machine like china that is still capable of the big marches and all that meets a network state that is more optimized around smaller ideologies not necessarily geographically bound uh who's gonna win and obviously I'm asking that in the context of we have a potential collision on the horizon between America and China yeah so I have a different view on what I think is going to happen here and the short version is um I'm bullish on red america and gray america in the sense of the let's call it the conservatives and the tech libertarians uh it's not exactly libertarian but it's roughly a tech I'm very bearish on blue america and what I actually think is we may see like a financial collapse in blue america that makes it difficult to wage a giant war against China a b is I don't actually even think that would be a competitive fight much less so than people think I think people think of the us as like the overdog versus china but I actually think if it if push camps to shove in any conventional war china wins and especially in the medium run and the reason being because they just have the manufacturing plan it's like fighting your factory they'll screw you on the screws you know they just out produce it takes years and years and years I mean just like the nuclear subs in the august steel australia uk a us they're supposed to arrive in like 2030 or 2040 or something like that it takes decades to do things in the us to build things physically and it's not like it just becomes magically faster or more cost effective and cost effective is very important by the way when it comes to military equipment staff 35 it's a zumwalt the you know the Ford class aircraft carried the um little combat ship you know like look I'm not a military expert but from everything that I can see there's massive cost and time overruns in military equipment as there are in um in the public sector the 300 million dollar bus lands or you know the same kind of thing in the pentagon there's a woman recently was talking to john steward you can probably play that clip the deputy defense secretary things Kathleen Hicks um saying wasn't a big deal the audit yeah the audit right like couldn't defend confined a few trillion dollars i mean come on right like the thing is that um actually I was able to boil it down to two premises do you believe the us can print infinite money and do you believe the us has an invincible military do you believe maybe both or neither okay and it actually turns out to my surprise so first of all uh just my audience alone do you know how many people said uh the us can neither print infinite money without consequence nor has an invincible military what percentage of my audience do you think said no to both yeah more of them thought that was possible than either of us would have expected less actually 44 percent in my view 44 percent of the people who responded to my poll said they think the us neither can print infinite money nor has an invincible territory so it means 55 percent of my audience did you didn't you expect your audience to to put that super high yes i i thought your audience would be way more sophisticated be like 90 percent or like no way can't do either yes us military not invincible printing money can't do it correct so that means that if if 55 percent of my audience thinks the us can either print infinite money or has an invincible military or both if that's 55 percent of my audience that's 95 percent or more of like the right so so what that means is um just to calibrate i recognize what i'm about to say is uh contrarian because it is not what what most people have been raised to believe they've been raised on transformers in gijo an independence day uh right you know whether people think the us military is good or bad they do think of it as invincible or all powerful and that is intentional the movies portray it that way the military collaborates with filmmakers on that to make it look cool both for recruiting purposes and intimidation purposes you know like all kinds of movies you know aliens attack the world and the decision goes to mr president what should we do you know and you know that wouldn't work if it was the president of belivevia you know you're not looking to the like that had to be a plot point in the movie why are you looking to belive in president you know by default uh you know people will look to the secret labs of the usa the secret cia this even when the us is the bad guy like in the born supremacy or something they're uh they're the powerful one right that has just started to change with movies it's like don't look up okay if you compare contagion of 2010 to don't look up you see that movie don't look up yes it's really worth watching because it is i think it was meant to be like a climate change parable i took it as hmm a covid parable but really just a parable on state capacity and it was an interesting transitional movie because it's still portrayed the us as being to global events in the sense of all the action about the meteors and stuff like that people are looking to the president and so on what to do but unlike contagion or many of the other movies to the silk it portrayed the us as a basically politically conflicted bumbling kind of thing that wasn't able to solve it at the end and the world did end okay very different than independence day or or even i mean the movie contagion in 2010 in retrospect it actually got a lot right you know origin of the virus and so and so forth uh what got wrong was that the cdc and the government were competent right and that they were like you know calm well-meaning apolitical civil servants as opposed to basically you know right what what happened and so that was actually the fictional part the fictional part was not the virus who was the competence of the us government the state capacity right so the reason i say all this is to protect the future of the world i actually think you can boil it back to those two premises do you think the us can print infirmary without consequence do you think the us as invincible military the reason is fiat currency is backed by men with guns okay paul krigman has admitted that and said that it's lower quote he's like fiat fiat money is backed by men with guns what he means by that is that um you know like uh uh the backing isn't like a bar of gold the backing is state force it'll force you to accept the currency it'll you know it'll throw you in jail if you don't and all this type of stuff right but here's the thing um in general more people on the left will say the us can print infirmary in general more people on the right will say the us as invincible military but these are actually equivalent premises you know why because they're both fake well because if fiat currency is backed by men with guns you can have a mathematical it's like an if and only if kind of thing it's like if you can print infinite money again without consequence you can buy whatever soldiers and guns you need whatever technology you need whatever bombs you need you can just buy infinite money no consequence conversely if you have an invincible military you can force people to accept your terrible currency no matter how devalued to this right so those are an if and only if a implies b and b implies a okay so um so these two things in a sense even if the left and right to screw


Political Theology (03:34:36)

these sort of they sort of prop each other up it's like vectors that oppose on this axis but some on this axis you know what i'm saying right so um the uh it's like you know the the compassionate mother and stern father visions of the state some in a vision of it as being omnipotent does that make sense okay it's like literally replacing g o d with g o v okay like god replaced with the state god replaced with government and people have talked about this political theology and so on calls from his written about this i wrote about this in the network state book um it's it's basically what is the strongest force in the world is it almighty god is it the u.s military or is it encryption is a god state of your network and from that you drive a lot right and so a lot of these people who believe the u.s can print inframani or that has an invincible military are literally people who think of the government is god they don't think it has limits they're secular they don't believe in a supernatural um they also don't believe in encryption and they don't believe in other states right like they are secular nationalists and they're most compatible frankly to people in the late Soviet Union who also were secular they didn't have christianity the network in capitalism you know they didn't didn't have that really they really believed in the state they've been raised in the state you know if they were critical of the state they fundamentally thought you know it would be edits around the communist system i think everybody has a god-sized hole that they have to fill what form can religion take that is the most useful or at least least damaging i think there's multiple solutions to this and so


Innovations, New Countries And Cooperation

Which Form of Religion Is Most Valuable? (03:36:15)

i don't think there's any one form per se you know like for example like um there are being there being times when christianity's done and you know the spanish inquisition and there's times when it's built great cathedrals and there's times when you know these long-term world like the abasides and amiods have had you know amazing um you know art and and science and other times when it's being you know less fortunate and you know same with Hinduism and same with every great religion right and so um even communism as as anti-communist as i am um you know as it as we mentioned before the word contained both x and its opposite right um and today china's communist but it's producing a lot and a lot of people there who you know there's a lot of people there who actually like it right you know i i maybe don't have options but but um it's producing a lot and so so the question of you know religion here um it's it's basically an organizing principle and there's just many different possibilities it's sort of like saying as a trivial sounding example but um are you using uh the google stack or the microsoft stack for your company right and you can kind of be successful both and you can fail both um and a lot of it is in the leadership and how it kind of uses that software that's not to say that every software if you had to predict then why one will go pathological at any one time is is it predictable based on uh other cultural forces or just not predictable at all i'm not saying religions are infinitely plastic you know but they're pretty plastic you can you can make them say as i said with x and the opposite of x and y and z i i do think that when a group is under threat especially if it's under threat economically or something like that it starts asserting okay we're poor but we're better you know like uh for example in the Soviet Union like oh yeah well maybe the capitalists have more money but we're caught we're purely the communist and we're sharing and they're exploiting each other over the other right and um you know you see in you know like um various places people would say well oh you know the westerners they may be wealthy but they lack spirit you know like in india you know we're you know we're more spiritual or that would be a defense i would hear at times in the past and nowadays though you hear that kind of cope coming from the west which is sure everybody else is economically out executing us in Asia or whatever but uh you know China's doing that because they're communist dictatorship and you know yeah we might be poor or we build slower best because we're democracy we're better more fully right and as i mentioned like when the u.s was the democracy ostensibly at least in the mid-century it could build and when china was even more genocidally you know much more genocide of the communist in the 70s it couldn't right so that's not exactly the active ingredient there so it's not a moral you know south or at least it's not in an obvious way if you have all four quadrants democracy that can build democracy that can't build communism that can't build communism that can't build communism that can't then it doesn't seem like that's the active ingredient per se you know so i don't know i'd say it's sort in a sense um i mean it's kind it's it's it's just what the leadership is that can take that ideology and shape it into something you know it has to have if your ideology was flat earth ideology you probably couldn't shape it into something but the great religions have endured over a long period of time because they do have some way of organizing people right they do work they like they install in human brains and they have the right hooks and so on to build communities and you know enforce laws and so and so forth and um you know all the all the groups that you read about the bible that got killed didn't have good enough operating systems to make it to the present day so basically just like you can have atheist monotheist polytheist with with god right like no gods one god many gods right you know so like monotheist is like the Abrahamic religions polytheist like Hinduism you could have atheist monotheist polytheist with states right the a status is like an anarchist whether they're a left anarchist or an anarcho capitalist right um the uh monostatist is like you know america first or you know chinese nationalist and then a polytheist is like a digital nomad or remote worker and so for example there's a difference between the person who believes in no states and the person who believes in many states um just like there's a difference in the atheist and the polytheist right Hindu doesn't believe in no gods they believe in many gods even if they're often equated by the monotheist right so like somebody who jumps between countries and is remote working or digital nomad is not against a state to maintain order they just want a choice of states they're very different than an anarchist does that make sense even if they're often equated with that okay and then the third category in the network that is in some sense the newest in some sense the oldest but you know by the network today it's very literal like the internet but in the past you can think of this capitalism or peer peer relationships and so on in fact this is guy jake burekart who many many many years ago way before he was invented and so on said you know the three great forces is funny i found this just an old book and i was like amazed at it i tweeted it's like the three great forces are um the state the church and then he called it culture but by culture he was talking about all peer-to-peer interactions and he essentially said it's everything that's not you know the state or the church or whatever right and so he was talking about god state network even then which is amazing someone else coming to a similar kind of thing okay this book i think is force and freedom by burekart anyway the network you could be an atheist uh monotheist and polytheist with respect to networks so the for example the no-coiner is somebody who doesn't believe in bitcoin at all they're like an a-coiner right then a monocoiner is like a bitcoin monotheist right a maximalist or an a theory maximalist um and a polycoiner is having to hold multiple coins and of course this is going to apply to social networks as well but i think what's going to happen we're still in the transitional stage but social networks and cryptocurrencies and messaging happens so it all become the same thing like every social network has a built-in cryptocurrency and it had like of a certain scale okay we're still like in the same sense that you might say we're early in the internet but these things are relatively young you know and um monetizing social networks becomes much easier with cryptocurrencies and so on so i think that's always starting to happen with like for example farkastors native currencies like ethereum i mean um uh noster is like you know it's got a bitcoin community and along may add doge or something like that to twitter i have no information for the pet thing so um why do why does that end up happening what is what is the nature of the network state that makes that a function well this is not even the network state yet but it's just uh you know social networks allow for communication they should allow for transaction right you can you can very complicated communications on social networks if you think about it you can do a message to i can send a message to 900 000 people like this okay you know how hard this delivered like a piece of mail to 900 000 people it's like really expensive and time consuming and so on right if you go back i mean every individual jump um this is funny you know this is actually reconciling the peter tiel and evan william's school of technological innovation tiel is like zero one like have a huge jump right evan william says everything is incremental innovation just take what it is and make it faster better right the extra you reconcile in the following way where you go from physical mail to email in the late 80s early 90s and you still have to buy you have to buy a big bulky computer somebody else has to have an internet connection with a modem they have to also have a bulky computer that's like thousands of dollars have set up in training cost


Types of Innovations (03:44:04)

versus just send an envelope right but you do get instant right you do get same day you know there and back right then you go from physical mail to email to a group email with reply all and then so called my my attachments so you know you have attachments you can have photos and stuff and then you go to like a facebook thread and each step is like you know incremental right it's like obviously continues with the previous one like a reply all with attachments is like a email group which is similar to a facebook thread right where right but if you think


Protocol scales (03:45:01)

about implementing a facebook thread with physical mail what would you do you post a postcard of like some i don't know like um something to post a photo of some party or something like that or a wedding or whatever and they're going to send that to 900 people they're going to print out that postcard send it to 900 people and all those people are going to make a remark on it law or great and they're going to send it to the other 900 people you know if you just think about how many broadcast messages that it is right a facebook thread that has that goes to 900 people and has 10 people comment has like 9 000 messages being sent back and forth i mean that would cost enormous amount of money in terms of postcards right so like what social networks have done in terms of communication relative to the world we grew up in the 80s is absolutely incalculable you know or it is not incalculable it's mallecable it's massive right communication that would have cost you your entire your salary is completely free right let me so far so that is what's happening with cryptocurrency it's making i mean every form of everything you can think about with capital formation you could spool up an on-chain entity you could finance it it could acquire something it could sell something it could have ai operated it could acquire another thing it could all be bought all capitalism becomes digital and on-chain like that's obviously the way things go because we're still in this transitional era where you have paper definitions of entities right and yet everything else about you know the business world is online but you have these paper documents that you know how do you know for example can you just run a script over your company to make sure you're in compliance with every contract does every contract have a machine readable thing which says how to pay this person and who pays and who's the signatory and what is the constrancy i need to be in like when we're thinking about a company is like a contract execution engine it's bound by a bunch of contracts and to receive y and so on it's like a lawyers we have thinking about if you're done a data room for a company's acquisition or or even a VC investment you have to compile all these contracts that bind the company this employment contract that contract for delivery of this this debt contract and so on and so forth all that should and will be programmable and all that will happen on integrated in my view into either social media or chat or some combination where you have a group people they're not just chatting with each other you can not just do a group chat you can usually have a group not just a crowdfunding but like an economic fail like why can't you just instantly start a company with ten other people and you start doing things and selling things right it's because the pain to go and set up a company and tear it down just like it used to be a pain to go and get a radio license but now i can just jump on a podcast right and um so so that's that's why uh like it's obvious to me that like on chain stuff that crypto is going to be a big thing uh is a big thing but it's it's like clearly obvious but um not everybody is is there yet well the big question that i have is as we really begin to put a fine point on exactly what the phenomenon is that is the network state so we were talking about the different forms that god takes and one of the forms is is crypto the network state so what is that organizing principle there's kind of two different things which are what's the scenario for the current world that's why i was on the and printable money and and so and stuff and then what is what i think is a piece of the next world not the only piece we start new currencies can be start new countries that's the concept of network state i wrote a


Start New Countries (03:48:34)

book at the network state dot com it's v1 it'll be updated um but you can go and read it there and i think it's it's decent and so the premise is that start new countries is possible preferable and profitable so let's first talk about the possible part our new country is even possible so you know we know that we've started new companies like google out of a garage uh and new communities like facebook out of a dorm room and new currencies like bitcoin off of the white paper so it could be start new countries right and as crazy as that sounds let me first give you a visual of what this might look like okay so this is a visual of a network state it's something which it's a group people that has a population comparable to that of a legacy nation state but has an annual income and physical footprint also comparable to one the main difference is that it's physically distributed rather than concentrated in one place so might have the total land area of in mr stonia collectively owned by the people but just spread all over the world in ranch is and subdivisions and towns and cul-de-sacs like imagine a china town was actually collectively owned by the people and part of a global network of them okay and just to see how a network state could build out do you see this gif on screen all right so i'm just gonna play this yes starts from one person in tokyo okay if i play this you go from one person in tokyo they're just making you know this is how a founder could go from one to a million right one and 17 people 172 1779 and 17 000 and so on this is how the network state builds out okay and you essentially recruit people from around the world who have this collective hallucination and the crowd fund larger and larger things until you start in your country as crazy as that is right now how would you actually go about doing that let me give a little bit more meat on the bone as you put it basically most countries are actually small countries most of the united nations has less than 10 million people there's only 14 countries with more than 100 million people okay and not on obviously we've actually seen a lot of new countries since the UN remember my thing about how 1950 was peak centralization right the unusual thing about our period in my view is so if you look because the breakdown of the british empire and the french empire and then over here the soviet empire all these new countries arose and for the last 30 years we've been in a very unusual time of a unipolar world right with this hyper power and when that breaks down you know the number of new country type entities will go absolutely vertical just like you know this curve kind of looks like the number of new currencies as well as you go from like 50 something UN member countries to like 190 today it's almost like a 4x by the way you don't think of it as being we have 4x as many countries or UN members let me that's a precise definition at least for today you don't think we have 4x as many UN members as we did in 1945. Point is as this sort of it's like atoms decomposing as these things fly into different directions now um you know the number of countries has been flat for a while but then so is the creation of new currencies and then it spiked right so UN membership has grown over time so if you 4xed these things right um could we do more right so first premise then again is most countries are small countries second is lots of new countries have been founded okay actually we're going to gain UN membership. Third premise is that cryptocurrencies rank with fiat currencies so here is um basically the you know it's a funny cycle fiat market cap.com okay like coin market cap and the thing is that at the time of this you know screenshot or whatever Bitcoin was the 27th currency globally by market cap. So question is could crypto countries rank with fiat countries and how would that look well before we had a table of currencies now we would take the Wikipedia you know the table of countries and right over here something that has 1 million 7 or 29 thousand 314 people would nestle right between Bahrain and Latvia okay and whereas this would be in Europe and this would be in Asia this is global and decentralized it breaks a fundamental assumption which says it has to be in one place that's what the internet allows allows us to this is one of several I think critical insights or critical insights let's say if you believe this it's an important insight the internet allows us to network on claims so lots of fragmented piece of territory and fragmented groups of people are much more useful than they were before so it's an opposite direction of the whole roll up era of the nation state you have the fragmentation era and the network state rolls them up in a different way online so they're unified in the cloud but they're separated on the land right and not completely separated but they're in clusters and the thing is that if you look at most countries are not growing that much in population but the network state would or a network state because this is just an example of one would grow by immigration and reproduction and so if you want to solve the birth crisis or what have you you can't really do it necessarily with economic incentives like Singapore other places have tried that I think you kind of need to give type a personality is a leaderboard on which they want to win okay and so you knock out you have 10 kids boom you just contributed like you can actually have personal contributions to this leaderboard over here and you gain status in society for doing that and that is actually the kind of thing if you want to quote fix birth rates I think it's the kind of thing that would work right um so so critical countries are in good fear countries and this is where a network state would uh would rank and of course you could have multiple of them all right and so one key concept here and this is the one that's the biggest sticking point for some people everybody's got a different sticking point they're like why do you think you could become UN recognized well the answer is sufficient traction results in diplomatic recognition how do we know that well Tuglu uh has done deals with GoDaddy okay so it's like the sovereign country has done you know basically the dot tv extension if you've ever seen like twitch.tv or something that's too volut and GoDaddy have a deal Nevada the state has done a deal with Tesla for the Geiger factory El Salvador accepts Bitcoin as its national currency there's many more examples of this Columbia to deal for the dot cio domain name um Virginia with Amazon on for HQ 2


The power of digital cooperation (03:54:59)

the mayors of Miami in New York except Bitcoin Wyoming and Tennessee have Dow laws who are interfacing with Ethereum so if you have companies and um uh currencies interfacing with cities and countries um the land is already negotiating with the cloud right that for a sufficient scale of money and a sufficient you know let's say oomph and social impact um already today lots of politicians love to have a photo op with a prominent entrepreneur who has a large online follow that's a huge thing today right especially if they're trying to recruit tech or founders to their region the endorsement of that founder is like a huge thing they bring economic development the only people who don't get this are in DC because they've taken it for granted forever right exit is a leverage where it's like oh you can't take those founders to entrepreneurs for granted you have to attract business to your area right only if you inherited it can you take it for granted okay so sufficient traction equals diplomatic recognition so now number two starting new countries is preferable right so why are new countries preferable it's about the push and a pull so first is that it's like you know Sri Lanka and Venezuela and Panama there's a lot of instability in the world right now thanks to inflation thanks to you know like things like Ukraine and whatnot so um there's all these sovereign debt crises that are happening so powerless people now have an alternative to fail states okay so that's one side of it the other side is ambitious people now have an alternative in the form of frontier societies okay so since humans expanded out of Africa since people came to the US for the Statue of Liberty for the moon landing and so on you know they can come from our moon landing because it's you know the moon landing there's a there's something within the human spirit that it's pioneering that wants to push frontiers right and that's actually present in every culture you know China had zen he even if you know they they pulled that back right obviously the Native Americans you know their ancestors made it across the Bering Strait and um you know Indians have their immigrant culture like everybody many cultures have something in them that's like okay we drive to push the frontier whether it's science or technology or the physical world right and what's funny is this coalition of the powerless and the power user is actually the same as a crypto coalition crypto is not for buying coffee that's actually the middle class normie use case what crypto is for is for the powerless people who are just trying to hang on to a bank account and the power user is pushing the limits of what a bank account even is and and that's the same as what the network says for if you've got a decent upper middle class or middle class existence in a normal first world country you may not care but if your country is breaking down or you want to um break into the future and have the self-driving car city or the um lunch-heavy land where people are actually focused on you know transhumanism or human self-improvement you need to be able to change regulations the communities that you start here uh even if they look like this on the map they don't all have to try to go for diplomatic recognition right so they can have different levels of quote sovereignty or have you the point is however that you can network communities together all around the world you can find your people and live with them and crowdfund billing skit okay so that's why network states are possible here's why they're preferable finally profitable so last but not least like this is a fun graph which is our poo is annual revenue per user of nation state social networks and network states so i you know just to kind of um it's a fun equivalence but consider your tax revenue as being the revenue of a nation state from a person and your normal you know revenue like ad revenue is the social network revenue social networks are known to have the scale of hundreds of millions or even billions of users right this is meta we chat tik-tok linkton twitter etc hundreds of millions of users but they're monetization per users only in like the tens of dollars okay but if you make 20 dollars per person then you have four billion people that's 80 billion dollars a year it's amazing amount of money right is this okay conversely the nation states um many of them are small they have much fewer people like one to five million people that's like a stonio singapore israel etc but their monetization per person is in the tens of thousands of dollars per okay then up over here here's the u.s and here's china and that's why they are the quote two superpowers because they have the highest combination of scale and monetization per person right they have enormous scale and monetization right and it's a log scale on this axis okay a successful network state though like a public company would be around here so they'd be lucrative enough crucially they could attract venture capital they could attract financing and that's important because something like this the more people you can line behind something the more feasible of a con so this shows that i think because profitable becomes more economically feasible you're not going you know pushing down your in a sense it's like a physical social network now i want to battle to the death on how real uh i think this is okay so i love this concept i think it's really interesting but every time i think about this my brain breaks a little because i have some core fundamental things that seem like they are show stoppers but i know you've thought a lot more about this and i have okay so uh the way that i see this is that the nation the the actual nations that these reside within will fight this with everything they have and so i will give people exhibit a so exhibit a is the u.s we we have become regulatory uh just oppressive when it comes to crypto and web 3 and so when i see that posturing and and i know that that creates opportunities it creates opportunities at the state level it creates opportunities at the national level but because you're going to have the the inter-jurisdictional warfare even a country that opens itself up and is like okay this is going to be our differentiator how are they going to make their money for letting you be the nation state so it's basically worst case you have a country that clamps down so the u.s right now is making no moves to let this happen they're they're taking the exact opposite tact in fact i've heard you say that the u.s is mimicking china and how they're locking down on everything or cracking down on everything so u.s is not it's not united anymore it's on unitary entity d.c and and blue america is hostile to new stuff absolutely but red and purple america may not be number one number two is um the design of the network state is set up to be resistant to the nation state in the same way that bitcoin is it's physically decentralized right so if you've got them let's have this debate so i don't i don't think bitcoin is very resistant um disabuse me of this if you have i get that you can make it hard for me i get that you make it more expensive we talked about that earlier but dude i only have to destroy the lives of so many people before people either flee at which point i clamp down on you anyway and i'm going to capital control the shit out of you and so you try to leave and i'm like yeah you're gonna pay what was it a hundred months of salary or whatever countries have done uh with yeah like there's so many in right right like they're they are going to find ways to stop you from being capital flight uh so this is going to be a huge fight i'm i'm not disagreeing with that um but i don't think that legacy governments are going to win it and uh or rather they're not going to win it to a hundred percent okay and i'll give several arguments for this the first is that in the centralizing arc upward you had you know the brain trust you're heard of that fdr had all these smart guys you know there there was there was a period from the early 1930s to 1969 where you had Hoover Dam Manhattan project Apollo where all the smart guys could no longer this is crucial they can no longer go and found they couldn't be Rock Feller and Carnegie and so on and so forth so they joined the government that's why you had all this tech talent in the government that's an unusual thing all these you know genius scientists and so on and engineers after that period the iq and before that period the iq drained out of the federal government like the federal government did not get the best people arguably in the 1800s they were they were all building railroads and you know then later automobiles and aviation the early 20th century right um it was it was something which was an aberrant time and now today a lot of the iq lot of the intelligence has gone out of especially the u.s federal government okay if you have um a perfect you know math sat and um you know you're you're really good with numbers but you can make a lot more money in being an AI engineer or an AI founder than you can as like some bureaucrat regulating right um and then you know like and you have potentially more power as well in the sense of you can build an entire thing from scratch you have more creative control right this is why you're seeing lots of professors leaving stand for another things to go and start companies this is why you're seeing journalists go to sub stack this is why you're seeing um you know people leave Wall Street to go to fintech or crypto like east coast establishment just doesn't have the pull that the frontier does right that's a so so a lot of the charisma and the iq has been just drained out of the centralized state in the opposite of what the 20th century was okay so that alone by the way just you know it's certain saying personnel is policy number two is um foreign affairs you know has admitted it's kind of lagging in here but they've admitted the world is now uh multipolar which means that blue america has more power over fewer people you're they're seeing red america and purple america breakaway at home you have states it's not just sanctuary cities but it's like gun laws drug laws abortion laws education laws crypto laws all kinds of things make america states again like the sanitist has his own military the florida state cards you know that the degree to which states are breaking away from the feds and simply just disobeying them and just doing what they want um is more similar to the pre-1933 and arguably the pre-1861 era and there's a huge tension between states and the feds there within the us then outside the u.s the foreign affairs point about the world being multipolar as we talked about earlier you have brazil and france and saturday in iran and china it's not just china rush eran anymore by the


Flushing out IQ (04:05:52)

way on their own it's all these countries in the middle who are breaking away uh you know fiona hill who's this um national street person actually admitted this in the leonard mary lecture that she gave like a few weeks ago um i'll just quote this one second um as you look that up one thing to to have in the back of your mind this feels to me like it only works if there is catastrophic um fragmentation like even the states breaking back apart i doubt is going to be enough it feels like did you have you read the book infomocracy i've heard of it go it you remind me again oh my god this is like i'm surprised you didn't write it so this is a sci-fi book about the network state come to life and so like every block the rules change and you just get an update to your phone that's like okay you've entered this zone and here are the rules that you might want to know about and basically everybody gets to vote with their feet constantly and you're moving from one jurisdiction to another and if you like that jurisdiction you move in you stay and if you don't you leave and so people are constantly vying to get people to come to them and the the conceit of the book is basically that we got to that point but that that to me is like the miracle the miracle is that the states will let this go to that point the one thing i'll say is the reason that this idea is so interesting to me and the reason that i am so fascinated by how your mind works is you're the only one that goes yeah we probably are gonna fall apart oh and by the way don't worry there's this other thing i think if there wasn't uh like if we didn't begin the first several hours of this conversation describing how we're standing at the precipice and we're about to fall off uh i wouldn't buy into this idea at all i'd be like nice idea but it's geographically bound ultimately and this is never going to work but i do think that as El Salvador tries to use like oh my god like our currency is a mess we have to use the some of these ideas cryptography specifically in order to restabilize maybe Argentina starts to do the same thing maybe other countries are like hey wait a second this is actually pretty interesting if the u.s goes through a tremendous moment of crisis which for reasons we have talked about i think borders on inevitable if i am right that you cannot just print infinite money but they're going to try and you're going to have a problem you you're at least i think going to break back into states that's my sort of thesis on that uh is that the state becomes the more dominant a relationship between the federal government and the states yeah like like i don't know what you might call it provinces or something like a state state


The Changing Face Of Global Politics

The Fall of Geographical Protects (04:08:39)

is unfortunate in the u.s means both kentucky but it also means a uh sovereign government without the disillusionment of the the um governmental entities that we have now you will just get a bizarre warring faction so i'm going to be in my network state but i'm only going to sort of be in my network state i'm still going to be beholden to some government even if it's a friendly government like texas or florida they still want theirs like they have a business model their business model is extracted from my taxes they're certainly not going to let go of that on some level that are going to get theirs and so now i'm i'm sort of paying gildos i guess to my thing but it's like if they can't give me more then i'm in trouble and i believe in your idea of the frontier but like i need to carve space away for the frontier to actually carry the benefits of an actual frontier i there's an aspect certainly of the current financial system which is wily kyutty okay but my mental model is the transition that you're talking about or that we're talking about the fragmentation is already happening in a huge way and the reason let me give you some examples like on this guy um i'm sure mr pranci is he has french guy gills babenade talks about transfer of sovereignty you think about it postal mail has been replaced by email and tax imidallians transfer sovereignty to uber and lift they're actually the taxi regulators and nasa has been replaced by spacex and on and on and on you go to functions of the centralized state that have been replaced by the decentralized network essentially by tech founders and you know you have things and i mentioned this like a few years ago but now it's even more explicit like a few years ago like david kameron who was the head of uh you know at 60 million something social network called the uk it's a joke but it's funny um had an audience with zuckerberg who uh you know runs a 50x larger social network three billion people right and um and it's like zuck was like i everyone could say endorsing camera but simply appearing with him it actually gave camera and zuck is able to communicate with more people on a daily basis than the president the prime minister of the united kingdom or the or frankly any head of state right if zuck wanted to buy a lot by a lot right and if you think about it today a long musk's endorsement by simply appearing alongside somebody is quite important for a desantis or a um rfk junior or or what have you a long run so he's the lord of the cloud as opposed to lord of the land right and um it's clearly very politically important they that's a very important constituency of triter may be the most important battlefield in politics right now right so and that is run by entrepreneurs right um so in many ways like the state has already given up a lot of power to the network arguably you can say i mean there's different moments you could put it at but in you know people you you stay or still say the most powerful man in the world like about the u.s president you know they say that right um after you know trump was deep platformed in early 2021 from twitter trump wasn't even the most powerful man in his own country it's astonishing yeah and that is a i mean because the cos of uh google and twitter and facebook and so and so forth as a consortium plus others in the in the government and media basically made the decision that you know nomos right and they deep platform not just trump but all the supporters okay that is one of several ways in which network is more powerful than state in some ways not every way but enough ways that's why the network state it works it's a phrase that works on several different levels um it identifies leviathans identifies a unifying thing that combines and works in state and identifies conflicts between them it's just like a pair of words that you can unpack in a lot of different and useful ways the point is though that basically once you realize network is already more powerful than state in some ways um you know as i mentioned email i mentioned the tech founders cryptocurrencies have more scale i mean bichaunat theorem are bigger than most national currencies um you know social networks are bigger and scaled in most countries uh tech founders are wealthier than most politicians and so on etc etc like there's already been a significant transfer sovereignty not everywhere like china is actually um china has engineers in the federal government their federal government right or their national government and i think by the data


Movement Towards a Network State (04:12:59)

is like the key boundary line essentially your head of state needs to have the skills of a tech CEO a tech founder or a venture capitalist or will eventually lose power to someone with such skills won't they also lose power to somebody with guns like at some point because like right now tessells backed by men with guns right all of this ultimately is still nested within a government so when i think about the network state i get the the people that are geographically next to each other if somebody comes and puts them under attack physically they can defend each other but if you've got a guy that's part of i mean let's just take mega the mega network state a very unpopular network state and so if you've got one guy that's isolated and he's isolated in minneapolis like bro isn't shrubble so one of the thought exercises i was running as you were talking is okay if if the uss are collapsed now and we have all of these tools would network states arise in their stead and i thought what they're going to become is it's going to be protector it's so it's going to be like mafia rule you're going to get groups of people and some of them i'm sure will be honorable etc etc but it will be it will stay largely geographically bound because you're going to need people to protect you and so i think it would add an interesting layer in that you could communicate what you stand for and all of that in a way that would be easier you'd recruiting people would be easier but at the end of the day if you're the satellite guy of an unpopular group in your physical area and there is a breakdown of rule of traditional law meaning people with guns your toast like they're going to come for you and batter you and so they're just going to you're going to re consolidate geographically and once they have to re consolidate re consolidate geographically i'm like now the the traditional state has a way to fight back because you you can only sort of vote with your feet because you still have to cluster and say a few things first is if the traditional state breaks up it's actually pretty hard to organize violence you know and so if it breaks up those marauding gangs or whatever are um i mean there's a lot


Anarcho Tyranny (04:15:27)

of intermediates for you and where the us was and where it is and like brazil and then benzoella and then like samalia right like there's a there's a ton of intermediates on that continuum and um several points here right the first is um that you don't have to disclose you know like your membership in this community um for example when you walk down the street uh yeah some buildings have logos on them but you know who's living in what place do you have x-ray glasses like your augmented reality glasses don't necessarily give you information on who's there right people could be christian they could be warm and whatever right all the types of stuff so number one is these communities don't need to be perceptible or visible to everybody not everybody needs to be able to see the map or the full map maybe you need to hold an nft to see some of it maybe in some jurisdictions where one node of the never see is persecuted it's invisible okay so invisibility is a big part of security okay like stealth just like a stealth bomb or except it's a self don't get bomb that's it b is that um a big part of the physical security problem now especially in the u.s. is because we're in this weird we'll see how long it lasts but this anarcho tyrannical state where uh the state won't defend you but it also won't let you defend yourself for example they're like throw somebody in jail for defending themselves right or you know you fire somebody forward i mean this is there's so many examples of this now but it's like the state is basically on the side of the criminals right de facto where uh you know this guy is in your case with this guy shot a robber but then he got charged with murder or something like that right that's that's like non non um it's a fairly frequent and um that's an unusual state of affairs which may not be able to last that long because people still need to respect and comply with the state for it to be able to go and throw somebody in jail and have that stick for people to kind of not shelter that person and whatnot and um the uh that combination of anarchy and tyranny you know seamsis was like a perfect example this where the working class uber driver um you know they they're subject to tyranny in the sense that they have this super expensive parking ticket for being on the side of the road for a second that just destroys their entire day's income but a crazy guy can smash a window and nothing happens to them right so that's that's a combination of anarchy and the tyranny right and um this is uh this is something which i don't think we'll be able to be sustained indefinitely we'll see okay um the point being that if it flips either way and you have either pure anarchy or you have like an actual civilized state and a state of pure anarchy a rough order is just quickly restored like that that group you know like that marauding group gets beaten by a better group right and i know that sounds very mad max and whatever you know in the fall of the Soviet Union there were organized there was organized crime there were gangs and so on there were civil conflicts that may be the best model for what's happening but it wasn't everywhere in the world it was in the former Soviet Union right it was focused there right so closer you are in some ways potentially to blue america the worse off you are that by the way in in my view is maybe the most surprising part of this whole thing it may be something like covid where you know early covid most people were totally apathetic about it didn't was an existing area and some people are like oh wow this could be really bad but the least obvious conclusion of all was this this will in fact seven hundred million people kill seven million people including a million americans dead from covid at least all the official numbers and then two years later people are like yeah wasn't that big a deal we lived right that to me is the most surprising thing in the ball that the world is essentially already largely decoupled from the u.s you saw that graph where all these countries are trading with china right and lots of world is already decoupled in a big way russia was able to decouple from the u.s in the middle of a war and they're basically okay right there's this that we people taught their financials would collapse they dropped the whole counts of the u.s being the indispensable countries no longer true that's a non obvious but it's a


How the world is changing & the US Government is being viewed. (04:19:53)

really important point here's a let me show you two things this is why this seemingly dry international affairs stuff really matters like this thing see this thing where it says uh the global distribution of power it's it's like a weirdly phrased question but you see the thing on screen right like basically what they're asking this is foreign affairs which is like you know on this particular topic they'll be the absolute last to acknowledge it they're like the official you know publication the state department and so they're asking the global distribution power today is closer to being unipolar than it's being bipolar multiple so if you really agree it's unipolar you're here and if you really think it's uh bipolar or multiple or you're shooter right um they say you disagree that it's unipolar so you're over here okay so even the people that foreign affairs polls it might be 60 or 70 30 they're saying it's multiple which means the us is no longer the dc is no longer in control of affairs so lots of mental models are built on the idea that they've got an organized government they've got a powerful military they've got a well-respected currency they've got diplomatic oath and if you start substituting the the government of don't look up in your head that's going to be closer i think to reality here is this lecture lennard mary lelle lecture by fiona hill she's like a you know russia gate kind of person you know like very much uh you know very very much like a state department official voice and glenn greenwald and i had the same reaction when we saw this uh this talk she basically said um ukraine you know that the us is kind of lost in narrative on it uh this is not become a proxy war between the us against russia the war is the reverse right and basically she said the war new cranes perhaps the event that makes the passing of packs america apparent to everyone right because for example do you know what percentage of the world actually sanctioned russia like population or no next i don't even have a guess it's 15 percent 85 percent of the world did not sanction russia wow okay the vats that's what like wow okay so it's the opposite of the 1930s in your 1930s new york times partnered with Stalinist Ukraine and was able to uh wrapped in 1930s the new york times partnered with Stalinist russia and was able to effectively choke out Ukraine right like they they help cause the Ukrainian famine during anti-rode all those fake articles she's is that that whole thing is crazy have you read the book the red famine yes and also you know this i highly highly highly recommend if you like the thing is the new york times will tell you about everybody else's crimes but their own okay and so get this book the great lady linked okay and it goes through how um everything from you know the Ukrainian famine the vietnam war uh you know like the Cuban revolution um you know basically every just like you know talking about how the tech founders are now sort of endorsing politicians right and helping them level up right you know like zach with with Cameron or along with right the ops had happened in the 20th century like almost every communist dictator had a journalist backing them up for example uh Lenin had john reade who wrote 10 days that shook the world Stalin had Walter Dranti um now had this guy edger snow who wrote like red star rising over china uh hochi men had david halberstam the new york times who wrote these fake stories about uh but this you know in in being persecuted in sotvinaum they're later admitted to be fake it was planted by like a north vietamist by um you had guys like oen latimore that you know assisted the communists you had um herbert matthews again in other new york times who wrote this hager hager graphical article on castro that helped him recruit for the Cuban revolution and made him seem to be like ideologically mysterious when he was just a communist and on and on and on right like basically whether it's Lenin, Stalin, Mao, Castro, uh hochi men there was a journalist there usually a western journalist backing them and writing propaganda for them and getting them distribution and influence many of the individual Ukrainians and russians or victims of this right but the new york times was trying to team the Ukrainian to sanction Russia but this time it didn't work so it's like history is running in reverse with the opposite outcome this time right 85% of the world did not go along with the sanctions because of social media because of other things people had a contrary view and for various reasons other countries didn't you know they were neutral or whatever on on russia you know versus nato right or at least that's how they stopped to be clear by the way one thing i just want to say about this is i you know like i know lots of eastern europeans lots of estanians lots of you know folks in the baltics many of those people don't want to be forcibly reintegrated to the russian empire like pune's invasion killed tons of innocent people um you know even if like you know he thinks oh nato had its guns there and so on there are a lot of other ways a lot of other things that could have been done other than this and so i'm very sympathetic to lots of folks in pauland or is stony or ukraine that don't want to be forcibly reintegrated to russia after they just got their independence right so i get all of that um but if you're on hill is talking about is there's you know there's there's the russian perspective the ukraine perspective there's the eastern europeans protective there's the american perspective but there's also the chinese perspective which is um you know the which is one thing there's the indian perspective which is why is india you know being asked to bankrupt itself for some european war we're just


The viewpoint from other countries perspective. (04:25:16)

gonna buy oil from whoever but you know we'll remain neutral there's the african perspective so you know everybody's got a perspective on this i think the assumption that you may have of in a background way right of like competent state that can organize stuff and that'll go after you and so and so forth like china has that you know for sure china's very very organized they're like law-flevel you know i mean in a sense i mean they're not they're not i mean lots of chinese people are good people and so on i'm not saying all of course right but let's say if the communist party wants to get you they're very very very organized right whereas in in you know the u.s the blue america you know the bloke sort of like chaotic evil it's beeline riots it's um setting things on fire it's um it's like cancellation it's disorganized it's chaotic it's sometimes effective but it's also got a very short attention span and so it'll surge up and it'll go away like an animal like you know looking and then it'll you know if if you're invisible it can be away from it right um and the advantage of i mean the disadvantage of chaotic evil is very unpredictable in a certain way you know it's like concert or whatever the advantage is it doesn't have like a planning horizon and it's in a sense less dangerous than law-flevel i think is um uh you know it's it's more concerning because it's more organized right most people as i said even only 45 percent of my audience believes that the u.s can't print infinite money and doesn't have an invisible military and those are equivalent like fiat currencies back when it comes if neither of those things is true if u.s can't print infinite money and if it doesn't have an instant military which and i think i think uh for the reasons i mentioned you know all the stuff on the fed and treasury and credit card uh crisis and student loan credit all those things that we talked about right like how bonds have been devalued that underpins can't print infinite money it's already inflationary in time they can't print on top of printing it'll just cause it to go out of control and why they have an invincible military because china has this manufacturing glider right and the u.s is terrible at building physical things it's all those it's not just the public works like loss and breeder the bus shade in l.a. or the you know the bathroom in san francisco that took 20 years or the 300 million dollar bus lane but it's also the some wall to the f you know 35 and the you know aircraft carriers and the four-class aircraft carrier and the and the literal combat chip and all these other things military is built so so those are the reasons of course these are unobservables maybe i'm completely wrong and and you know the the state is really good at kicking the can forever right so just decades the thing thing keeps grinding on but i have a kind of a feeling that even as the ability to print and the economic sphere of the u.s is declining they're pushing it harder and even as the u.s is becoming militarily weaker and more disorganized and less competent they're pushing it harder to. Paulji you know why you're so interesting so ray daleo is he's mapping out the six phases and you feel like when he's talking you're at a 30 000th of you it's very useful in terms of how to organize your thoughts where you pick up the mantle is i'm zooming in on the territory and now i'm seeing the intricacies of how everything falls apart i'm able to start formulating a hypothesis on how this starts to build moving forward and because you're so tech savvy it really feels like you have the closest ability to predict the big arcs


Understanding Current Global Issues

A unique advantage to understanding current issues. (04:28:54)

you've been very honest that of course you could be wrong and who knows sort of how this all goes and it's very complicated but you have the clearest vision for how the pieces get put together in a world where we have cryptocurrency we have cryptography we have the network effects of the internet and all that it's utterly mind-blowing i can't believe that we've gotten this far i have so many other questions that i could ask it's absolute bananas where can people keep up with you bologgps.com maybe you can put that on screen i don't actually need subscription revenue but what i do want to do is engage people on some of these things because unlike a lot of people i don't think oh collapse comes and then magically the next thing appears you just start building the next thing before the collapse awesome brother the way your mind works is insane thank you for sharing it with us today it was uh amazing everybody at home if you haven't already be sure to subscribe and until next time my friends be legendary take care peace if you want to learn why crypto is taking over check out this episode with raul paul i've went down this journey that you're going down now in 2012 and that journey led me to crypto


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