Conversation (July 2022) between Balaji Srinivasan and Lex Fridman analyzing long-term economic and social trends in the U.S. Key claims in this chunk: long-term decline in interest rates indicates limited Fed policy flexibility; combined supply-chain disruptions and monetary expansion could produce serious inflation or hyperinflation; U.S. sociopolitical divisions are geographically intermingled but digitally segregated, producing a new form of "social war" (cancellation, deplatforming, online flag-flipping) with increasing stochastic street-level violence; Srinivasan predicts a trajectory toward American anarchy, a bitcoin surge, and potential government attempts to freeze or seize bitcoin.
So what do you think the US Looks like in five years if we could paint a picture?
Oh, sure. It's like BLM and Jan6 all the time. Or let's say much more.
You mean in terms of events or in terms of discussion?
In terms of like there will be mobs that are gathered online. It's like stochastic network warfare between two groups. That would be, is it five years, might be 10 years. I don't know the exact timeframe. It could happen faster, it could happen slower. But fundamentally I think the catalyst is if you look at interest rates and you look at the graph. Have you ever looked at the long term graph of interest rates?
Yeah, I have actually. But we should put it in the show notes for people.
We should put in the show notes. I just want to find this graph. Long term chart. Okay, so if you go to this graph and you click Max.
All right, so this is tradingeconomics.com United-States interest rate.
Yeah, so United States interest rate, United States fed funds rate of tradingeconomics.com?
Right, I'm looking at Max.
Okay, and so what do you see? You essentially see something where over a 40 year timeframe you have a trend which is very much down and to the right. Yeah. And what that is is it's basically something where one of the things I write about, and Dalio's actually also talked about this, there are trends that affect humans that are longer than the cycles that we're intuitively familiar with. For example, you're familiar with the cycle of your breath. That's a few seconds. You're familiar with a day. You're familiar with basically the seasons of a year. And that's actually what most people are familiar with. Beyond that, maybe the election cycle in four years or the longest thing somebody might be familiar with, frankly are venture capital funds or startups, which are 10 year cycles. That might be the longest thing where you can run an experiment and see a few reps of it in a five or ten year timeframe. Over your life, a venture capitalist might see hundreds or thousands of five or ten year long experiments that most people don't really track things over that timeframe. And any normal human cannot really track things over 40 or 50 years. You have to kind of dedicate your life to that same thing that's happening over multiple decades. You really need really good charts and stuff to see what the heck is happening. This graph is one of the best and most important because it's so unambiguous. And what it shows is essentially that The US Economy, we have run out of juice. The Federal Reserve being able to print money and so on, it just keeps going down on this trend like interest rates. And if you notice every time they try to jack it up, it has to be pushed back down and kept down for longer and longer and longer. Right. If you're seeing that in that graph. And now the next time when they're going to be forced probably to bring interest rates all the way to the floor maybe before the 2024 election. And I think you will see very serious inflation as a function of that because they'll print money and we'll actually have genuine goods shortages because we have all these supply chain things that are hitting. You have China doing its crazy stuff with the ports and the COVID lockdowns. You have the slow steaming regulations.
I do not know the slow steaming regulations.
Basically some ESG thing. This is a great example of how the moral flippening. I'm getting this second hand, so I might have it wrong, but I believe it is reducing the speed of cargo ships to cut down carbon emissions. Right.
Okay, let me just define two things real quickly. So you mentioned Dalio. Just for people who don't know, Ray Dalio, former, let's just call him head principal at Bridgewater Associates, at least at the time that I interviewed him, largest hedge fund in the world, about $175 billion or something like that. ESG, environmental, social and governance factors that bleeds into what you were just discussing. So please continue.
That's right. So just to summarize it, basically, we have more money. They're eventually going to need to print again. We have literally fewer goods where China's cutting off supply. There's sanctions, there's wars like Ukraine, there are COVID lockdowns. There's stuff like slow steaming, which is this huge self inflicted wound by the ESG thing where every single container ship in the world has to slow down now. Right. So you have a lot of things that can sum up into something where it gets nonlinear fast. And if that happens and you do have not just the inflation we have now, but genuine serious inflation or even hyperinflation. That is when society comes apart in the US because people have been so freaking angry at each other during the 2010s in a relatively booming market. In the 2010s, up until 2019, things were decent economically, but man were people mad at each other. And when there's actual genuine scarcity, if that does happen, if physical goods are hard to come by and inflation's destroyed Your currency and so on. And you have a country where people are heavily armed and. And they're yelling at each other on social media. And you've got 50 governors, you've got a very potent cocktail for bad things. And we've sort of seen this in lots of other countries that frankly, America was involved in partially destabilizing, like look at Libya or something like that, or Mexico or what have you. But that people just really do believe on some level, quote, it can't happen here. But I think American anarchy, unfortunately is sort of where we're heading. What exactly does that mean? I'll try and paint a picture. So first of all, in 1861, if you go and look at the map in 1861, you have the Union and you have the Confederates, and the ideological and the geographical coincide. You have the north and you have the South. And we take for granted that the victory condition was for the north to just invade the South. And because by invading their capital and burning and so on, they didn't just destroy their supply chain, they also killed their morale. And eventually they got the entire south to concede and they could flip them ideologically. And Emancipation Proclamation and Reconstruction, they uninstalled the software in their heads and installed software with new moral premises. Same in World War II. Invade Nazi Germany, denazify them, capture the capital, the ideological and geographical coincide. And that's how we think of wars as working. Now today, though, if you go and look at a map of the US and you look at Republican, Democrat, it's not like in clean states, it's very fractal. It's at the individual county level, you've got little red here, a little blue here, purple here. It's extremely grouped together, it's fractal. And so what that means is that that in physical space, these two nations are cheek by jowl. But in digital space, as that graph I showed you showed, those two social networks are just clustered apart in digital space, right? They are separated in digital space. Did I show you that graphic? Did you see it? Yeah, I got it.
We'll put this in the show. Notes for everybody.
So when you see that graph, you're like, oh, okay. So in physical space people are cheek by gel, but in digital space they're far apart. And that's where the battlefront is. And you can reconceptualize the last several years as a social war, okay? Because if in a physical war the goal is to invade territory, in a social war, the goal is to invade minds. And now when we think about cancellation, deplatforming hashtags, et cetera, et cetera. The point is that what you're trying to do is get a node on their side to flip from blue to red or red to blue. And how do you do that? Because they're now uttering your hashtag slogan, BLM or MAGA or something like that. They're uttering that slogan, that note is flipped. It's like capture the flag. You're seeing from their utterance that they are saying the thing that indicates that they're now on your team, they're raising a flag over their company, et cetera. And you are able to cancel and silence those people who are saying things that are contrary to your view, and so on and so forth. It is essentially something where, because you are constrained from using physical violence, since what are you going to do? Invade a cornfield? Invade a city that doesn't actually work, you're winning digitally. It's digital warfare. Right now. When I say constrained from using physical violence, as we've seen, that's actually less. We're starting to see stochastic digital violence. The Proud Boys and antifa and so on, punching it out in the street. That's actually an extremely unusual thing. In the 90s and 2000s America, you just never saw left and right wing militias punching it out in the streets. But you see that now. That's actually something which is de rigueur. I don't know, we're on the hundredth or three hundredth. It's like an event. You wouldn't be totally shocked that that's happening, that political violence is happening in America, but it is. And it's on a ramp. And so you put all that together and basically what I see is serious inflation, bitcoin mooning and then the US government trying to freeze or seize the bitcoin with something that's similar to Executive Order 6102.
