Balaji Srinivasan on Fiat Crisis, Russia, and China

If you've got a strong hand and then you overplay it, you get reverse bandwagoning. The US was strong and it was a hyperpower, and then an entire generation of people grew to think that hyperpower meant unlimited power. So even as the US declined, they got more aggressive because they weren't chin-checked. Do you know what I mean?

Right.

So you go from trying to fight Iraq and Afghanistan to Russia to China, You go from the 2008 bailout to the 2020 print to whatever is about to come. And when you print to infinity and you fight something that's stronger than you, you lose. So you've been juiced full of painkillers while the Fed has amputated every body part, so to speak. Okay. And then you wake up and you're like, holy shit, what happened? Don't tell me about your fake conspiracy theories. I want to hear about your successful conspiracy practice. Well, like the American Revolution, like any successful startup, like any successful activist movement.

Today on Upstream, I sit down with Balaji Srinivasan to discuss the fiat crisis, geopolitics, Balaji is an angel investor, founder, philosopher, and author of The Network State. He's formerly the CTO of Coinbase. This riveting conversation is in many ways a follow-up to his appearance on my other podcast, Moment of Zen, which I'll link to in the show notes. Without further ado, here's Balaji.

Balaji, let's talk about the fiat crisis.

What is happening is, um, I can try and give a few analogies, but one analogy is a digital fire. Okay? When you see a normal fire, you can smell the smoke, you can see the haze. Okay? And if you didn't believe it was happening, you could go and look for yourself. But sometimes you wake up in a hotel and there's a fire alarm and you have to decide, is this real or is this just a drill? Because most of the time it's just a drill. Most of the time, you can just put the pillow back over your head and go back to sleep, and it's not a problem. Once in a while, it's a real thing. Once in a while, it's actually real. And once in a while, you might not be able to smell the smoke before it reaches you. And this is, I think, one of those times where unless you're actually really closely paying attention, or I shouldn't say very closely. See, the thing is, Even if you were just an operating CEO 2 months ago, suddenly you found that your bank wasn't working. This wasn't a normal thing. This was something where one way of thinking about it is that with creative accounting, the US government has been shifting around the losses that it booked since 2008. It owes all this money on Social Security and it owes all this money to bondholders and it owes all this money to these people and owes all this money to that people. And like a 3-card monte, if all those people don't come looking for their money at the same time, you can be like, oh, I've got the money here. I've got the money here. But if they all come looking at the same time, all those zeros that the Fed added to the balance sheet actually now show up as zeros, as a little play on words. And so suddenly, this is now a consumer crisis. Where you suddenly saw that was your warning, right? The warning for 40,000 tech CEOs was one day the money was gone. And it came back. It came back 3 or 4 days later. It came back on Monday because they bailed out the banks in this— they actually didn't actually bail out the bank. That's the thing, by the way. Even that term, we don't actually have a word for this. A better term is bail-in. You know why? What is happening now is not really the government bailing out the banks. What's happening is the world bailing out the US government. That is to say, the US government, including, by the way, the American public, but certainly the world, the US government has spent beyond its means for a very long time. And every dollar holder is— and everybody who uses the US financial system more broadly, that means you've got stocks that are on a US government-controlled ledger, like a DTCC, Um, that's like the, you know, in, um, on Wall Street. That means basically, think about it, all the assets that the Russian truck— the, the Russians or the Canadian truckers had seized, hundreds of billions of dollars of assets were seized, right? Think of yourself as like a Canadian trucker, right, where your bank account could be frozen. Think of yourself as like the Russian government, where everything that you have that's on Western servers can be seized. That is what is going to happen. Everything that is not nailed down will be pulled into this gravitational maw to pay unpayable debts. And the thing is, when I say that, on the one hand, people will be either A, they're like, oh, that's not going to happen, or B, yeah, it'll happen, but at some point in the distant future, in the long run. But sometimes the long run is now. So let me actually— so that is kind of very macro. Let me give specific things that are happening. So first, there's There's essentially multiple shocks all hitting the system at the same time. And it's funny because Dalio is coming at it from a very different vantage point, but the categories that he enumerates, I think, are similar. Those multiple shocks that are coming, there's the financial shocks, there's the internal political shocks, there's the external shocks, and there's technological shocks. So the financial shocks, one of the proximate things, there's so many different things in the economy that are broken. One of the proximate things is The US government sold billions and billions of dollars of bonds in 2021 to banks and other institutions that it then devalued in 2022. And then all those institutions are dying in 2023. In other words, the government sold assets and then consciously devalued them, bankrupting banks. This was not something that the banks could have easily really feasibly hedged. This is not something that was really the bank's fault. They're obligated by guidelines like Basel III and so on to buy so-called high-quality liquid assets like treasuries. Maybe there was some workaround that they could have figured out if they knew exactly the series of events that was happening. But essentially, the reason that so many banks are dead— the Fed alone in Q3 said 722 banks had massive losses on their books. FDIC says the losses are $600 billion and most banks have major impairments here. Roubini has said many banks are technically insolvent. Most are technically insolvent. Stanford study has shown $2.2 trillion in unrealized losses. And we don't really know. And the reason we don't really know is the banks put out quarterly statements and it's like a quarterly board report versus real-time analytics. And even the quarterly board report, It's okay. It's better than nothing. But obviously there's things, as somebody who's invested in companies, a quarterly board report is not going to get you everything. The CEO knows there's other kinds of things, things that are either not reported or they're reported in the fine print. Not that I'm saying a CEO's trying to deceive the board or whatever, but in a public company's filings, they have to worry about all kinds of lawsuits and other types of things. So those 10-Qs, are not going to be complete. So the point is that the Fed stabbed through the heart basically all of these banks, and then it took them a year or two, and now they're falling over dead. Okay. And then now the Fed is like zombifying, bringing them back. The issue is, see, like, it's hard to talk about this in either— if you talk about this in a very simple way, then people, their eyes will glaze over. Okay, you're saying the government is bankrupt and get the heck out. Or you talk about a complicated way and their eyes glows over in a different way. There's like bonds and this and that, and it gets boring seeming, right? You know, that's why I think like visuals can sometimes be helpful and showing graphs and stuff. But the fundamental thing is that you are being— people are being misled about the banking crisis. The New York Times is saying the Fed spotted these issues beforehand. It didn't spot the issues; it caused the issues. You know, it's like it's like saying. The serial killer spotted the victim beforehand. Indeed, they did. They spotted them and then they killed them.

Well, one thing I appreciate you as a thinker is because anytime you have a big prediction or proclamation or assertion, what you do is you outline your premises so that people can see where they differ, the assumptions. I mean, you did that with COVID and that was very helpful. And you're doing that here too. And so maybe let's get into There are certain people that agree with some of your premises, and then maybe you differ with them on maybe the last one. So maybe let's get into some of those on a granular level.

The 2 premises that are the points of departure, and what's interesting is they seem different, but they're actually equivalent, are A, can the US government print an infinite amount of money? And B, does the US government have an invincible military? Okay. Those seem different, but they're actually the same. Why? If you can print an infinite amount of money, then no matter how inefficient it is, it can always buy more troops. It can buy more planes. It can buy Buy more this, buy more bullets, whatever. It can pay people. So, if it has infinite money, it has an invincible military. And conversely, if it has an invincible military, well, as Krugman himself so helpfully said, fiat currency is backed by men with guns. So, if you have an invincible military, then you can print infinite money because the backing is infinite. So, that is actually— though those seem like different premises, they're actually the same premise.

Interesting.

And those are the premises of the dollar nationalist. The dollar nationalist believes, and they can be either Democrat or Republican, there's left and right versions of it. They're the left and right status, one way of thinking about it, as opposed to left and right libertarians. And the left status believes that you can print infinite money, and the right status believes you have an invincible military. If you believe those things, then everything that I'm saying is just—

It's nonsense.

Okay. Yeah, whatever. That's just turbulence on top of this invincible thing. And that is the impression that in very different ways, Peter Zeihan or advocates of MMT will say. Essentially, their message is the US is so overpowered, OP, as like you'd say in the video games or whatever. The US is so OP, dude. What are you talking about? We're the only ones. We're the strongest, blah, blah, blah.

Right.

And you know what? That's the thing is, that is like a— it is a quasi-empirical but quasi-religious premise. Because many of the people who proclaim this do not have God, they're secular, and they do not have a network, right? Meaning they don't have something like Bitcoin or they don't have like a social network that means something to them. So, because of that, they are secular nationalists If on the right, or their secular status on the left. Basically, of my trilogy, God, State, and Network, what's the most powerful thing in the world? Is it Almighty God? Is it the US military or the US government? Or is it encryption? If you believe in Jesus Christ, if you believe in— if you're a religious Jew, if you're a religious Hindu or Muslim, you have God. If you have Bitcoin, If you have— actually, if you have Ethereum, if you have like a really important community subculture that means something to you, you have the network. But if you have neither of those, you have only the state. And so for that kind of person, the state can't fail. Wait a second, you're taking away their god. And so it's not— what happens is if you start critiquing that, if you say you can't print infinite money, then people say, what? Eventually, they'll get to, what, you just want to let poor people starve? You want to let them die? Oh my God. Right? Because you're taking away the benevolent mother aspect of their god. And then conversely, if you say the US doesn't have an invincible military, then very quickly you'll get, why, you're anti-American? You're undermining our military? You traitor. Because you're undermining the stern father part of their god. Okay? And it's not rational. You know, people talk about the civic religion.

What do they mean by that for the audience?

Yeah. So it's like the US has a civic religion where things like the Constitution are venerated like scripture. And there's a lot of good to this. There's a lot of good to kind of quasi-irrational or even irrational adherence to principles that hold up even in bad times. You know what I mean? Where there's always a short-term reason to abandon your principles. And then in the long term, there's a reason that those— if you thought through the principles well. So there's a lot of good to that. But the bad to that is it can be abused. For example, those people who want the state to solve poverty and so on by printing the money. Well, guess what? You know what? It's not really going to the poor. The working class is getting crushed by inflation. And whether you might get some short-term jobs, but their purchasing power is being eaten away and the inflation is going to asset prices. So it's upward redistribution of wealth. That's the opposite of what that person who thought they were signing up for this inflationary program wanted to get. And conversely, the patriot on the right, I mean, how did Iraq work out? How did Afghanistan work out? One thing that's amazing is how memoryless people are, where $8 trillion was dumped in the desert, you know, and, uh, you know, the, um, the same language was used. You're, you're an Islamofascist anti-American who hates America for opposing the Iraq War. Remember all that, right? And, and the thing is that we've learned, like, it's amazing how much that's been memory-holed. It's simply like, it's not even— people don't even bring it up in the discussion over China Or Russia or whatever. But to pause for a moment of reflection on that, at the time in 2003, it seemed that there were only 2 options, or at least it was being posed as only 2 options. One, gigantic war. Okay. 2, do nothing and hate America and give up and so on. Obviously, in retrospect, what you could have done was number 3, which is special ops. Okay. You could have just taken a very surgical SEAL Team 6, whatever, approach to getting bin Laden, and Iraq had nothing to do with it. And that was just a gigantic disaster that caused ISIS and millions of people dead and displaced and trillions of dollars burned and all kinds of soldiers dead. Right? So arguing for the surgical route was the right approach.

Hey, we'll continue our interview in a moment after a word from our sponsors. Secureframe is the leading all-in-one platform for security and privacy compliance. Get SOC 2 audit ready in weeks, not months. I believe in Secureframe so much that I invested in it and I recommend it to all my portfolio companies. Sign up for a free demo and mention Upstream during your demo to get 20% off your first year. This is a quick note for listeners who might be interested in sponsoring one of our podcasts. We officially launched our media company Turpentine, where we produce podcasts across tech, business, investing, and more. Our audience includes founders, executives, and key decision makers at large tech companies, as well as listeners like you. If you're a B2B or B2C company, you should consider advertising with us. We have a couple spots left for new sponsors, and we're also seeking lead sponsors for exciting new shows that are launching soon. Reach out to me at erik@turpentine.co. Or directly through our website if you're interested in partnering. Thank you. Back to the show.

Okay. We have learned nothing from that $8 trillion kind of thing. In fact, what's happened is after the war with Iraq and Afghanistan, not the war with, but the Iraq and Afghanistan wars, $8 trillion, right after that, someone who's like a drunk, they're so full of adrenaline that after they smash through a table, they'll crash through a window and then bash into a car or whatever. So the rebound war after losing Afghanistan was Ukraine, because in October 2021, all kinds of people were saying, oh, the US military is weak, and so on and so forth. And then really right after that, in Q4, they started escalating with Russia. And of course, it'll be, look, obviously Putin should have invaded, and so on and so forth. Again, it's possible to have more than one opinion. You can believe that this is a totally unnecessary war, and you can be sympathetic to Estonians and Ukrainians and all these people who've had their country blown to smithereens. And you can also say that actually there were other options other than this gigantic war. Again, just like Iraq, it's like this stupid false binary. There's 50 options you could have had, you could still have. And now, so you go from losing in Iraq and Afghanistan to right now, by the way, 18 months after the start of Ukraine, 14 months, whatever the number is. You have Blinken talking to China about having peace in Ukraine, essentially total change of tone, where Blinken is now the Secretary of State, is saying you could work with China to achieve peace. And Charles Kupchan in Foreign Policy is basically writing, we need a new strategy in Ukraine. It's not working. And so all of the hysteria of March 2022, April 2022 has now been dialed all the way back down in favor of we need to negotiate a peace and Russia's going to stick around. And maybe it's like a frozen thing like the Korean DMZ. Once you start talking about peace, there's 50 options. Who the heck knows? But also recognizing that China's a player there. The US cannot— like with Iraq or Afghanistan, the US could unilaterally decide when war started and when war ended. Okay, pull out the troops, pull out their troops. No other player— they didn't have to negotiate with China for peace in Iraq, right? The fact that China is now a player at the table because with their support, Russia is standing up on— Russia is fine, right? I mean, or rather, obviously it's been hurt, but it's not dead, right? And the entire thesis was the financial nuking of Russia would kill it. And it certainly looked like that could be a thing because we'd never seen that before. But Russia lost hundreds of billions of dollars in foreign assets. It was totally cut off from the Western financial system. But 85% of the world continued trading with it. Only 15% of the world sanctioned it. And that 85% of the world that traded with it is disproportionately the part that makes hard goods, that makes physical goods, it makes commodities. So Russia was not choked out. Russia wasn't strangled. It was fine overall. I mean, what I mean by that is it's taken a hit, But it's nowhere near what people thought it was, right?

So you're saying China has flexed its democratic muscles? You're saying we're moving to a multipolar world, basically?

We're at a multipolar world. Absolutely. Just the fact that Blinken is talking about negotiating with China for peace in Ukraine is more like pre-1991. The 1991 to 2021 era is now over. The fact that the US has to negotiate with another great power, For peace. And the fact, obviously, that China has made peace between Saudi and Iran. China has— either China or China plus Russia are facilitating talks between Syria and Turkey. China has a deal with Brazil. China has a deal with France. All kinds of guys who are neutral. And we're not talking the China-Russia-Iran axis or whatever, even if that's an axis. We're not saying all these countries are enemies of the US. We're talking about neutral countries like France and Brazil and Saudi going into partially or fully the Chinese camp. So that gets to the second factor, the external factor. We talked first, the financial factors. It's the Fed devaluing its bonds. It's the Fed returning to printing with BTFP. It is credit card debt and student loan payments are about to resume. It is the commercial mortgage or the commercial real estate crisis rather, where markdowns of like 40% are expected. Every single sector of the economy you look at, There's just gigantic, gigantic holes. And so that's the internal economics. And the external geopolitical is just that China has made advances. Like, the US dollar is no longer indispensable. Russia just proved that. That is the thing that I don't think people get. If it's not, you know, like the major conclusion of the war, I'm sure you can take military conclusions. But the economic conclusion that every neutral party is looking at is in the middle of a giant war, You could switch over from the dollar system to another system, and as long as China is in your corner, you're okay. As long as China is still trading with you, you're okay. That is totally different than the world where the West could sanction somebody and just turn them off. Okay? We're also seeing that domestically where mainstream media can yell at you, but they can't cancel you anymore. Okay? We're seeing it domestically with the federal regulators. When a federal regulator in the 2000s would point at somebody and say, they're bad. They just had to put up a letter on their website. They didn't have to do an enforcement proceeding or something like that. And it was like, you know, Lord of the Rings, the Ringwraith points at something and everything dies around them. You know, like the bushes shrivel up, right?

Yeah.

So, like when the FDA in 2010 would go and like put up a letter on their website saying so-and-so company is bad, like employees would quit, investors would sell, or they wouldn't re-up. Customers would abandon it. It was basically like what they're selling poison. Holy crap! The FDA didn't have to do anything after that, right? It didn't. It didn't have to. It just had to put up a letter expressing questions. Okay, and that's actually good for the regulator because it's like minimal amount of force. It's not even a love tap. It's like they can say, see what the thing is? Why does the agency prefer to do that? If they didn't do an enforcement action, they can't be sued. Because what do they do? They just put up a letter asking questions. There's some stupid— of course, they did something, but there's various legal doctrines and so on that basically say, well, they didn't do anything to you, so you don't have standing to go back at them and say that they illegally regulated you, despite the fact that all your customers and your investors and your employees all left as a function of their announcement. There's no ostensible liability. But now you have the SEC having to get out there and fight their case on Twitter and take a huge amount of flak, and probably it's like 80/20 against them, and half of Congress is against them, and they're getting sued left and right. This is a completely different situation than what it used to be. Simply the fact that they're fighting means that they're not winning. It's a really deep point.

You think power is decentralized?

Power is decentralizing, yes.

Globally and internally.

Yeah, this is the thing to understand. If you're genuinely a hyperpower, all you have to do is point at something, sneeze at them, and they're dead. Everybody scatters because they fear what's coming next or what could come. And the thing is though, that a hyperpower is smart because they constrain that. What blue America has done in particular over the last 10 years is they have fought simultaneous all-out conflicts against tech, Trump, China, Russia, and then also India, Israel, Brazil, even France. You know, Macron is attacked or whatever. Everybody has gotten attacked by blue America, right? It's domestic and it's foreign. Now, of course, many of the groups that they're fighting also dislike each other, right? Republicans don't like the Chinese and The Middle Eastern countries that the US has been attacking don't like the Israelis and so on and so forth. Okay. But though that's resolving to some extent recently, but the point is that blue America in particular is at war with the world. This is something to understand. Blue America is, you know, America is 4% of the world and maybe, you know, 50% are Democrat and then maybe half of that or less are elite Democrats. And that's like blue America. So you can think of it as the 1% versus the 99%. Okay. And when you're taking on the Republicans, like conservatives, and the grays, the tech libertarians or whatever, domestically, and you're taking on Russia and China globally, and you're also alienating all the guys in the middle, right? For domestically, for example, lots of center-left Democrats, you know, just RFK coming out with the support that he has, whether you call him center-left or not, It's RFK. It's Greenwald. It's Taibbi. It's Lee Fang. It's Barry Weiss. It's Nellie Bals. All kinds of defectors from the NYT. All kinds of defectors from the establishment. Some of their very best writers have defected. Okay? And, you know, Thomas Chatterton Williams. I'm not saying they agree on every single point. Okay? But the point is, blues have lost a lot of center-left people. Not just Reds and tech libertarians. And then abroad, they're not just fighting Russia and China, formidable enough as they are, but they're also losing France and Brazil and Saudi and other kinds of things that were thought to at least be in the Western camp. So Blues are just— they suck at diplomacy now. They also suck at propaganda domestically. These are their core strengths. And they can't censor anymore. They can't control the narrative anymore. They have just one story out there among several, and their story is weak. It's one of these things where it's funny, if they don't have 100%, they have 0%. There's certain types of things where if you don't have 100% control over the airwaves, you might as well have 0%, because what they're putting out is just flat-out lies. And so it's like the Soviet Union. Once the Soviet Union had some degree of free speech within their borders, the only reason the official lies stood up is that you got 10 years in prison for contesting them. That was a joke in the Soviet Union, right? Oh, what was that guy saying? It was just so funny. Oh, I can't tell you. He got 10 years.

Yeah. And so, you're saying blue America had the media, they had the academy, universities, academia, they had government, but Twitter, Substack, all these defectors, have caused like rifts and divisions such that there's enough of a marketplace of ideas that they don't have 100% anymore, and thus they have zero? Is what you're saying?

It's both internal and external, right? They have lost inter— like, this thing was so dominant, right? Remember 1991, the hyperpower? It had total control over, over basically everything, okay? Like dominance like you've never seen. And over the 30 years, they've— from 1991, they have blown the perhaps the biggest lead in human history, from winning everywhere without fighting to fighting everywhere without winning. Okay? And you just look at the trajectory of the cities. Every advantage, like New York City or San Francisco in the early 2000s, had every advantage in the world. They've completely blown all of that. The direction is just down and to the right.

And is it because blue is like a— it's a deconstructing ideology, and deconstructing ideology is better when you're trying to get power? But it's not good when you're trying to run stuff.

It's basically like a spoiled brat that was born to power but didn't earn it. And so as it declines, they use the power that they were born with, and that gets them short-term wins, but it has long-term losses. And for a while, it wasn't obvious to me exactly how that was going to turn out. Sometimes totally ruthless use of power can work. Unfortunately, you know, so all the canceling, all the deplatforming, all the sanctioning, all the bombing, like, you know, maybe, maybe that would work, right? But it didn't work. And the reason it didn't work is they didn't actually— like, you know, Stalin, when he did a purge, he would actually like kill the guy on the other side, right? He had the saying like, death solves all problems, no man, no problem. When the wokes do a purge, they call it a It's called a cancellation. That's a juvenile term. You know where that comes from? It comes from canceling a TV show. I think it probably goes back to cancel Colbert. So basically, cancellation is the bad, but fortunately weaker version of purging. Just simply the fact that we can talk about it. You couldn't talk about somebody being purged when they were being purged. With the purge, you lost life, liberty, and/or property. Right? You were killed, you were jailed, and/or you were robbed. Okay? Cancellation doesn't actually do that. What it did is it would get somebody fired, they'd lose their status, they'd lose their future income, they'd lose their future employment, but they weren't killed or jailed or robbed. It was still quite bad. Okay? But the Blues' mistake is that they did this to so many people, including many of their best guys. Again, lots of Hollywood actors. Are you noticing lots of Hollywood actors aren't actually They may not be conservative, but they're not out on the ramparts in the same way they were.

I have 2 responses to this. First is, I think the spoiled brat analogy, it explains what's happening now in terms of why they're losing power, but it doesn't explain how they got it in the first place, right? Because the red America used to run the country to some degree, right? Like, blue America did take over power, the long march of institutions. And so there's something there.

I think there was a red-blue— I mean, at its best, there's an aspect of both realism and idealism that work together, where you have both the hardheaded capitalism and military, but you also have the higher ideals of free speech and equality and so on and so forth. So there was, I wouldn't say it was just, maybe it was a center-right country in the '80s, but it wasn't, it was something that was center-right. It definitely had a fair amount of that, the genuine equality or what have you out there, right? There was a degree of equal treatment. Now, you can argue, by the way, in retrospect, that was unsustainable. And that essentially Reagan's formula in the '80s, while he won the Cold War, he did so by kicking off the deficit spending where he could both cut taxes and keep spending high. So he didn't cut welfare spending that much, but he cut taxes at the cost of— so that was a new coalition. That was an unsustainable coalition that led to deficit spending that is eventually going to lead to the whole thing collapsing in 40 years. Okay. But That was probably a good short-term decision by him, given the constraints. Sacrifice if sometimes you have to sacrifice the future to win the present, because if you don't win the present, there is no future. You know, this is actually a deep point, by the way, is when countries go into huge debts to fight wars, the reason they do so is if they don't win the war, there doesn't matter. Right? So it's like win or die. You know, it's not totally true that doesn't matter because you know, like with Germany, for example, it got settled with the Treaty of Versailles and the debt payments and so on afterwards. But in many scenarios, it is true that, for example, like the Confederacy, all of its debts got discharged after the loss in 1865. And actually, the Union was actually supportive of that because they didn't want to inherit the debts of the Confederate States. The reason I know about this is I was actually just digging into that, the 14th Amendment thing. And the reason that it came about was, yeah, the United States' debt shall not be— no one shall question the US's public debt, but the Confederates, yeah, you can question theirs. Loser pays. It's kind of like a lawsuit kind of thing, right? Loser pays. So that's why states go into massive debt to fight wars. And then when you understand that, you understand, okay, That's why they're incentivized to do that, not for wars, but for the drug war or for the war to win reelection and so on. If you don't win today, there is no tomorrow. So if you can go into that kind of debt and have somebody else pay for winning the war or the short-term reelection, you will.

Duh.

All right. But that sets up these structural incentives where you need somebody who is extremely long-term oriented and willing to sacrifice themselves for the short term in order to fix that. Or you need some mechanism by which somehow that long-term thing becomes short-term pain, and then it becomes an issue and people deal with it.

This is an important point because some critic might say, hey, you sympathize with red America, with gray America. Why don't you, like our friend Vivek, try to help them defeat blue America? But I think what you're saying is, that the structural incentives are such that there's no way America can— there's no surgical option here. There's no way it can balance its budget, so to speak, and pay off some of the debts because the structural incentive is such that they would just keep printing in order to win elections. Is that your point?

Well, that's part of it. But basically, I was trying to think about exactly how to phrase it in a precise way that encapsulates a lot. And I think the precise phrasing is, I'm really only bearish on blue America and everything they control. That happens to be a lot of things, but fewer every day. Okay, so let's take that. That sentence is short, or that para-sentence is short, has 4 clauses. Let me analyze that. I'm really only bearish on blue America. What does that mean? That means the elite Democrats who are still loyalists, not, uh, the Hollywood actors who have just gone quiet, Not center-left defectors like Barry Weiss and so on. I'm talking the ones who are still in the tank, you know, like so blue America is both the people, but it's also a land. It is blue-controlled cities, okay? And that's you know that that's like large swaths of of the northern and western U.S., right? It's Portland, it's Seattle, it's San Francisco, it is New York. It's places like this. They have terrible. Financials, and it's also blue states, terrible financials in general. Not every single one, but most of them. Like California has this massive, you know, tens of billions of dollars budget deficit that's only going to get worse. Okay. And so blue America is a people, it's a land, it's also a way of life, it's a set of government, it's a, it's, you know, it's the Fed and it is the Treasury and it is big banks and it is CDC and the FDA and the entire U.S. regulatory state Okay, that whole ball of wax, you can think of that as the Western present. Okay, whereas Red America is the Western past, and Gray America, the tech libertarians, are the Western future. Okay, so in the same way that Hollywood has movies on repeat forever, and we have 70-year-old, 80-year-old presidential candidates and really old congresspeople on, on the blue side, that loop, that forever loop, is the Western present. It's— or the bailouts of 2008, trying to bail out GM and so on. All of that is the Western present hanging on with its fingernails to something that is disappearing. It's also globally trying to hang on to the rules-based order while violating it. It is trying to push all the technologies back into the garage with regulation. It is trying to censor new ideas and so on. That is the Western present hanging on to this era that is slipping away. It's why you still see Tom Cruise in movies. He's like, you know, 60 years old. It's, it's the more the future doesn't look good for blue America, the more they go back to the present and the very recent safe past, not the distant past, which is also unsafe to them. Okay. And, um, you know, as that past gets further back in time, they actually become conservatives. You know, what do they want? They want 2007 when Time magazine still had expense reports and, you know, things were okay and it was the internet disruption. That becomes further and further back in time now, right? So point is, so I'm bearish on blue America. It's a people, it's a land, it's a government, it's a way of life, it's the entire set of mores and everything they control, okay? Which is, in theory, everything that's downstream of FDA, SEC, the Fed, the federal government, the blue banks. All of those institutions are, in theory, upstream not just of hundreds of millions of Americans, but billions of people around the world. because these regulations are upstream of lots of stuff. Lots of countries harmonize.

Basically, the idea that other countries outsource their regulation to the US.

Exactly. Just like a small company will use Facebook login rather than implementing its own login, a small country will use FDA regulation rather than implementing its own regulation. In this fashion, a country of 30 million people will just use that, and big companies like this because they just get through in the US and then they've got clean sailing in the rest of the world in theory, right? There's a reason big pharma likes this. But what it means is it's harder for small companies to innovate since you don't have regulatory diversity. So, regulatory diversity is good for innovation, it's bad for getting to massive scale. It's an interesting point, right? Or at least it's more costly for massive scale. Some would argue you actually have worst of both worlds where you have to get both FDA and local things right now, and there's some truth to that. But I think we're in a transitional era. Point is, I'm bearish on blue America and everything it controls. And that's a lot of things, but fewer every day, right? So everything it controls, and that's a lot of things we're just going to talk about, fewer every day. They're losing their grip. They're losing their grip over communications channels. They're losing their grip over individual states. Make America States Again is happening. Both red states and blue states are. Have you heard that one before?

Just from you and the Joe Lonsdale podcast, but that was good.

It's good, right? So, make America states again means that you're re-decentralizing. You're going back to the pre-1861 dispensation. What people used to say is, they used to say the United States are, and after 1865, they said the United States is. Because before that, in the 1700s, early 1800s, like, being a Virginian had an identity of its own. Being— just like you might say someone's a New Yorker, they're a real New Yorker, they're a real Texan. That's still an identity we recognize. You don't really recognize, oh, that's a real Montanan. Okay, maybe a little bit, but could you tell the difference between an Indianan and a Pennsylvanian? I don't know. Maybe they're small things. Maybe those things are becoming larger now. But the point is that, at least at a policy level, for sure, you can tell the difference between a red state and a blue state at a cultural level. Policy level, it's abortion, it's gun laws, it's drug laws, it's immigration laws, it's sanctuary cities. But it's also E-Verify, right? The gap between California and Florida just grows larger and larger and larger every day. Eventually, what is that on a line with? That's on a line with disunion. I mean, disunion has already happened in the cloud space. Blue and red are different nations sharing the same geographical space. You can see that if you look at the Vox polarization thing from 2011, or if you look at the CGR study on Breitbart from 2017, and that has just accelerated. Now, you have truly different social networks, you can see that not even within the same— not even just on Twitter, like blues and reds talk to each other, but now blues and reds have their own social networks. Blues are on Mastodon and reds are on Gab and so on and so forth, right? So cognitive separation precedes physical separation. We're going to have something that's like an American partition. We already have.

You mean like a division of the country or like a split?

Partition is a specific thing that happened in India At the time that India got independence, Hindus and Muslims basically were on either side of the line dividing what is now India and what is now Pakistan. And the creation of Pakistan at midnight, basically there's this huge wave of Muslims going to Pakistan and Hindus going to India. And many people were, especially on the Pakistan side, pushed out, like Hindus were pushed out at the point of a sword. Millions of people died, all kinds of property was destroyed. It's this very traumatic event within India where you just say the word partition, everybody knows what that is. They've seen all kinds of movies and stuff on this. And in many ways, one of the things I've talked about is how history is running in reverse and how India is becoming more similar to the US of the 1950s and the US is becoming more similar to the India of my youth. So one major insight I had earlier this year is that America is becoming more like the old India and India is becoming more like the old America. A convergence I never would've predicted in the '80s. It's America that now has an absolutely world-class group of highly intelligent people trapped in a tragic commons and ruled by a dysfunctional state. America is a country that's now wracked by communalist violence, socialist lunatics, and racialist obsessions. It is America that will soon give birth to an impressive international diaspora fleeing economic craziness, ethnic conflict, and potentially geographic partition. India, by contrast, is more similar to the God and Country America of the 1950s than the woke America of the 2020s. It has fashioned an ideology that has unified a population of many Indian sub-ethnicities, much like the 1950s US unified many European sub-ethnicities. It's also shipping serious national projects in both the public and private sectors, like Aadhaar, UPI, Arogya Setu, and Reliance Jio. And it's number 3 on the global tech unicorn list. And so, The reason I say that, for example, let me talk about that ethnicity point. You've probably seen these old movies that have like a World War II movie and it's got the Italian guy and the Polish guy and the Appalachian American and the New Yorker fast talking, and they're all in a foxhole and they're all getting along because they're all Americans. They're all fighting for the same team. That is where India is right now. You have the The guy from Tamil Nadu and the guy from Gujarat and the guy from Punjab and the Bengali, all of these different groups are as different as Finnish people and Italians and Spanish people and English. India is like Europe, one way of thinking about it. And India has never been unified until the modern era. That's a new thing. You've never seen a united India before. And there are lots of birth pangs and other types of stuff that had to happen for that to happen. But now it's happened, and India is actually on its centralization arc, as is China. And so a unified India that has multiple generations born as Indians, that think of themselves as Indians, and that relate to others as Indians in this giant continental-scale market that now actually has pretty good governance is a totally new thing, which I don't think people understand the full importance of. I'm shocked by how well it's working. Right. Also, software is just really good culturally for India. AI is really good culturally for India, because you can just write something down and it's done. You know, it just kind of fits the model.

What explains that evolution in terms of like, whatever happened in India? Couldn't that also happen in America? And put differently, like, you're bearish on California, you're bullish on Florida. If DeSantis or someone wins, can that happen in America?

It's so important to understand those states that have turned around from communism and socialism and the far left or fundamentalism and become functional states. And the problem is that with Russia and China, because they are designated American enemies, people don't even want to hear that, right? Like China's turnaround from Maoism under Deng, you know, and becoming a capitalist state, People don't understand that what happened. They basically think that China would be like the Congo. I saw someone tweet about this. They're like China would be the Congo if the U.S. hadn't sent all its jobs there. That's actually sort of the right-wing version of a left-wing fallacy, right? The left-wing fallacy is oh the you know the rich are rich because the poor are poor. The right-wing fallacy is other countries are only rich because America made them rich, and if America didn't make them rich, they wouldn't be rich. Both those are wrong. I mean, in the sense that obviously America had involvement with China, but a good way of thinking about it is, you know how Microsoft actually early in Facebook's history made a big investment in Facebook as a way to fight Google? That benefited Microsoft and Facebook. And Facebook, obviously just giving $15 billion to Facebook would not make them into the— whatever, they're close to a trillion, but whatever, the multi-hundred billion dollar company world goliath they are now. I mean, Zuck reinvents himself every year. Now he's like a jiu-jitsu master, right? Zuck just deserves respect as a CEO. He's like a real leader of men who has taken innumerable hits over the years and just manages to maneuver and figure out the next move, right? And that's not something where just giving somebody $15 billion does that. He gets $15 billion because he's Zuck in 2007, right? No, sorry, he didn't get $15 billion. He got a $15 billion valuation.

I should be clear.

He got a lot less than $15 billion. I think it was like $1 billion at 15. I forget the number. Point is, Microsoft funded Facebook to fight their number one enemy, which is Google. And then Facebook really capitalized on that opportunity and built what they are today. And of course, Microsoft and Google and Facebook are all competing with each other today. Okay, sort of similarly, the USA was like a venture capitalist in China in the mid-1970s. Why? Because they wanted to fight Russia, who was their number one enemy at the time. So it's exactly a similar triangle of Microsoft, Facebook, Google. It is like USA, China, Russia, or USA, PRC, USSR. And they made that venture capital investment in China, and they strengthened China, and they took China out of the Soviet camp. And now the Soviets were flanked on both sides because their huge border with China, it was no longer a friendly power. They were US-aligned. That's underdiscussed, but it's pretty important. I mean, there was already the Sino-Soviet split, but China was on its own. Now China was America-aligned. Now, The USSR needs to watch its back as well as its front. Now, the USSR couldn't, you know, they couldn't do a deal with China. China had been taken out of the camp. They couldn't relax, you know, normalize relations, at least at that time. So US gained a ton from that geopolitically, A, and then gained a ton from it economically because essentially the entire blue American lifestyle has been on the backs of Chinese people. There's a lot of hard work that those guys put in, right? Over a generation, absolutely, 2 generations arguably, depending if you call a generation 40 years or 20 years. 45 years of absolutely grinding by the Chinese people got them where they are. And so you have to just respect that. I mean, like, here's the thing, like, is there— are there tons of stuff that the Chinese government does that I disagree with? Absolutely. Do I want to live under the surveillance state? No. Am I concerned about their emerging power? Absolutely. All that stuff is true, but you have to also just— you, you just have to respect the degree of accomplishment there Because it's a ferocious adversary. If you go into it saying, like Zeihan— again, I'm not trying to beat up on him. I have no beef with him. I just disagree with his premises. Like, oh, the US has this huge, powerful blue-water navy. China does 100 to 300x the shipbuilding of the US. China builds most— I've shown you these graphs, right? Like the one on steel, right? Just maybe put up the steel graph. Do you have the Visual Capitalist steel graph? Google visual capitalist China steel. Okay, just this graph alone will make the point if people haven't seen this. Look at where— all kinds of people will give me these historical arguments. They'll be like, not even historical arguments, they'll be historical slogans. They'll say, when I bring up all these points, they'll say, oh yeah, Popology, look, the US is a sleeping giant and it's going to be filled with a terrible resolve. That's what the Japanese discovered after they bombed us during Pearl Harbor. Or they'll say, as Churchill said, The U.S. does the right thing after doing everything else. You don't get it. We're going to figure it out, right? So first is the world was just completely different 50 years ago. This graph makes a point. 50 years ago, all right, do you see on the right-hand— the left-hand side of this graph, you see where the U.S. and China steel production is? Okay. The U.S. is about 10x where China is. China's that thin red line, thin, thin, thin, thin. Now, 50 years later, China makes more steel than the rest of the world and about 14x what the US does. So from a 10-to-1 US ratio 50 years ago to 10-to-1 the other way. Okay? It is just completely unrealistic to think that the US can fight its factory. People do not get this. They're just totally unrealistic.

One thing that's interesting, going back to your Microsoft-Facebook example, is US supported China's growth thinking that China would modernize or liberalize like the US, almost as if like Greylock supporting Social Capital's new fund, thinking it would be a great feeder for Greylock, only to find that Social Capital then competes with Greylock for Series A or Series B, like head to head. And similarly, like, yeah, China wasn't like a puppet.

That's right. So the Microsoft-Facebook investment is a great example of that, right? Like Facebook had a mind of its own, and it delivered what Microsoft needed from it at that time, and probably kept its end of the deal, and certainly delivered enormous economic value to Microsoft. That might have been Microsoft's most successful venture investment of all time, but it had its own CEO. The analogy of oh, the U.S. beat Japan, so it's going to beat China. Okay, and Japan was a big deal in the '80s. Biology, you don't get it. It'll beat China in the same way. Okay, well, first of all, sometimes history happens in reverse with the opposite outcome. Okay, and that's like a quick version. But the the detailed version is Japan didn't just lose. The Plaza Accords were the U.S. Forcing Japan to lose. That was when the US still had relatively competent management. And the short version is that the entire Japanese machine, which was based on being very productive at home, exporting internationally competitive goods, and saving in US dollars, and then using that to buy US properties like a piece of real estate or companies and stuff in the US, All that was broken by the Plaza Accords. It— a rough analogy might be, uh, Gmail disallowing Facebook to use Google Auth. Okay, so it's like cutting off a mark, you know, like a— you could still probably have some weird workaround where Facebook could like log in. Okay, but you know how you've seen like lots of the big companies, for example, you can't just buy Kindle ebooks on the Kindle app. Apple and Amazon just cannot come to a deal on that. And so the market access has been cut off for Amazon. Or when Meerkat is cut off from Twitter API. So essentially what the Reagan administration did, this guy Robert Lighthizer was a principal negotiator, is it's like they cut off a certain API access for the Japanese. That's a very high-level, imprecise way of thinking about it, but essentially, the Japanese were arbitraging a certain growth strategy that the US cut off. And why could the US cut it off? Why did the Japanese accede to the Plaza Accords? There's several reasons, but one of the biggest is Japan is an American colony. That's the thing that people don't get. It's not really a sovereign country. The US has tens of thousands of troops there. It literally wrote the constitution. And at the time, Japan, by the way, one of the most underappreciated rivalries in world history is the Japan-Soviet or the Japan-USSR rivalry. That's actually in some ways the most important theater of World War II. You know why? So there's this great book, Stalin's War, that talks about this, which is the— we all know, just to digress on this for a second, we all know that the US fought Japan, and we know the US fought Germany, and we know that the Germans fought the Russians. Okay, but in this giant bar brawl, why don't we hear about the Russians fighting the Japanese? Because they're adjacent to each other. That should have happened because the Germans are adjacent to the Russians. They fought them. The U.S., right? So why didn't that happen? Well, first of all, it did happen. Basically, the the TLDR is the Japanese beat the Russians in 1905 in the Russo-Japanese War, which was one of the most important conflicts in world history because it was the first time that a non-white power had beaten a white power. It was the strongest non-white power, and it was the weakest white power. But it still showed that white power might not be totally dominant. And so, an underappreciated thing that people don't get: Japan became like the champion of anti-colonialism for like decades. A lot of the early African Americans like W.E.B. Du Bois were pro-Japan because of this. A lot of the Indian anti-colonialist activists were pro-Japan because of this. Okay, so Japan was. It wasn't just far-right imperialist, it was also, in an interesting way, far-left anti-colonialist, what at that time would be considered far-left. It was an interesting fusion of these, where it was the non-white champion. And in an alternate reality, when the US and USSR won, the US took the side of the right and the USSR took the side of the left. The USSR was the champion of the Third World and the US was the Euro. In the alternate reality where Germany had been the right and Japan had been the left, if Germany and Japan had won World War II, then Germany would've been like the Aryan supremacists or whatever, and Japan would've been Third World Revolution. That's actually the tendencies from beforehand, right?

Okay.

But coming back to the Soviet-Japanese theater, and then coming back to Japan-US, the Soviet— the Russo-Japanese War was this huge humiliation for the Russians, And it was something where after the Russian Revolution, even though the new guys were communists and they were not czarists, they changed the ideology around. You know what they couldn't change? The geography, right? They're still adjacent to Japan, right, on the eastern side of Russia. And so they still had a rivalry with Japan. And for the next 20 or 30 years, this book Stalin's War by Sean McMeekin makes a really fascinating point that a high priority, maybe the number one priority of Soviet foreign policy, was to get Japan and the US to fight because their 2 capitalist rivals would fight each other. Okay. And they did this with actually a bunch of Soviet spies riddled through the Americans. Okay. Like Harry Dexter White and other guys like this. And they would manipulate various memos and stuff like that to Roosevelt. Think about how journalists would misrepresent what happened in, you know, the famine of Ukraine. Like they said, Stalin was just liquidating them in the sense of, Just liquidating them into the masses. He wasn't actually killing them, but he's actually starving them to death. When you have false reports going out like this, it's it's like it's sort of like sending a false signal to a computer, and it moves the arm this way versus that way. Okay, it changes world history. So false signals were being given, incorrect signals that got the U.S. and Japan to fight. I'm not saying Japanese were good guys. I'm not saying you know the Soviets were were good guys or whatever. I'm just saying the U.S. partially got played in that into a and Japan got played as well into a fight with. Between the US and Japan. And that's why— also, there's another aspect, which is the Battle of Khalkhin Gol, and that happened right before the big outbreak of hostilities in World War II. And the Japanese and the Russians fought, and the Japanese got hit bad enough by the Soviets that they didn't open up that second front. Had they done so, you have a totally different outcome, because if the Japanese had gone and attacked, let's say, Vladivostok, and they'd gone after the Soviet Union as opposed to the US, and they had pincer attacked the Soviet Union with the Germans from the, the West and the Japanese from the East, and they hadn't given the US a reason to enter World War II, you have a totally different outcome, right? Anyway, point is, coming all the way back up, the Japanese-Russian relationship, or Japanese-Soviet relationship, certainly in the early part of the 20th century, was a pivotal part of world history that is understudied. And because you have the border of these 2 superpowers, and why didn't they get into it? Well, they did, and actually it's just been underdiscussed. Part of the reason it's underdiscussed is probably there's a lot of historians that are sympathetic to the Soviet cause, and talking too much about why they didn't fight starts revealing what Sean McMeekin revealed. And he's looked at the archives and shown that the reason they didn't fight is because the US is riddled with communist spies.

Okay.

All right. Coming back up. And of course, there's Venona. That's an NSA declassified a bunch of cables after the Cold War, and it basically showed that they had lots of communist spies in the US that they were tracking. And this, by the way, shows that conspiracy theories are true in both senses. Why? First is the charge there were lots of communists in the US government was true, and second, this huge code-breaking operation called Venona that would've been of political value to the right and to the left was never revealed. Why would it have been of value to the right? It would have proven the right right. Why would it have been of value to the left? It would have uncovered the fact that communist spies were being found in the US, since they would have broken the spy ring. Right would have gotten short-term political advantages, left would have gotten long-term political advantages, because those spies would have gotten rolled up. The Soviets would have known that the codes had been broken. Yet, for a reason, it was never put out there in public. Maybe people know about it, but it was never put out there. And by the way, you know what the opposite of a conspiracy theory is?

No, what is it?

The official story.

Yeah, exactly. That's good.

Right? That's good. And it's funny, it's funny because actually that's in the Encyclopedia Britannica definition of conspiracy theory, is that it is not the accepted view of events. Uh, there's a few more lines I have on the conspiracy theory thing. It's actually really interesting, just to digress on that too for a second. The opposite of a conspiracy theory is a complacency theory. It's, it's a narrative of events that tells you to be apathetic and not care, Because and just be complacent. Oh, it's not a lab leak, right? Oh, there's no virus. Oh, there's no banking crisis. Oh, there's no inflation, right? It's calm the population down, treat them like cows, you know, let them not panic, right? Because the premise is that there's only apathy or panic. There's no calm preparation in the middle, right? Either you're tranquilizing the population with bread and circuses. You know, we've got you know Biden meeting with the with the. gosh, Ted Lasso, even as the Fed has emergency meetings for bailouts, or you have the other side, which is panic, oh my God, and there's never calm preparation. Then third is, don't tell me about your fake conspiracy theories. I want to hear about your successful conspiracy practice. Well, like the American Revolution, like any successful startup, like any successful activist movement. I mean, Go and look at— a great example of this is Claudette Colvin. So Claudette Colvin, Google Claudette Colvin. Alex Jones would say Rosa Parks is a crisis actor. Okay. So what I mean by that is, like, I'm on Rosa Parks' side. Okay. But the point being that if you read this NPR article, it's talking about, you know, 50 years after the fact that The entire Rosa Parks episode was a test case. It was not some organic thing, and then people jumped in afterwards. They were looking for a sympathetic plaintiff to cause an incident and be covered in a certain way, and then cause a case that would overturn a law. And their initial person to go and sit on the bus and cause this incident was a woman named Claudette Colvin. But she had, I believe, an out-of-wedlock pregnancy, and she would not have been a sympathetic person. So they were thinking one step ahead to the media coverage. So instead, they have Rosa Parks, who's a grandmother. And so a grandmother, of course, people have sympathy. Oh, you're not going to let a grandmother sit down and whatnot, right? And so they picked a very sympathetic case who had— it was very difficult to attack the person. And so they managed to get this test case through.

All right.

And so when you look at that, that concept of the test case, the activist test case, You realize the extent to which so many events that you've heard of, it's a conspiracy, it's stage managed. I mean, there's a book called Beautiful Trouble that is literally about, it's a how-to manual for conspiracies. Okay. It's basically, that's what activist manuals are, right? You know, it's like the Margaret Mead quote, like, never doubt what a, that a small determined group of people can change the world. It's the only thing that ever has, right? So every successful revolution, Every successful startup, every successful activist movement has that aspect of quote conspiracy to it, right? And you know the word—it's it's really useful to. It feels like something where you want to press on it and then flip it over into something, right? And so, you know, your successful conspiracy practice shows that it's not a theory; it's practice, right? That's a fun way of doing it. Conspiracy theory, complacency theory. Third one was gosh the opposite conspiracy. Official story. And then there was a 4th one, right? The 4th one is, one man's conspiracy theory is another man's Schelling point. Okay, so first let's talk about that. Yeah, so a Schelling point is coordination without coordination. It's like if you have a bunch of people in New York and all they know is they're supposed to meet the other people in New York, and the only thing they know is that New York City I'm talking about, what are they going to guess? They're going to guess what the other guy's going to guess. They're going to try to guess the thing the other guy guesses they're going to guess, right? It's like this And so what people will give, if you do this actually empirically, they'll go to— well, so there's a few different places they'll pick, but the best one is front of the Empire State Building. The other one that people will go to is the clock in Penn Station. And the third one sometimes people pick is the Statue of Liberty.

Okay.

The front of the Empire State Building to me seems like the most— that's the one that I would pick. That's the most unambiguous because It's the hardest to miss somebody there. It's not like a crowded train station or something, right? Statue of Liberty is kind of a pain to get out there, and it's like not obvious where you'd stand, you know? And Times Square, like, or the Times Square is another one that people pick. But the point is, there's— but Times Square isn't great because it's like a little too big, you know? So point is that there's— if you drop people in and you have them coordinate without coordinating, if it's a shelling point, there's just like one point, but you could have a few shelling points potentially. Let's say the Empire State Building and others. That is a way that you can have coordination without conspiracy. There's no central coordinator, but it's decentralized coordination, right? And, um, you know, that's another way of putting it. One man's conspiracy theory is another man's decentralized order. How about a 6th way? Here's a 6th way. One man's conspiracy theory is another man's community theory. So community theory, community theory basically means, for example, let's take it back to the original thing. Which is right now, if you look at it, there's Operation Chokepoint 2.0. It looks like a coordinated attack by the US government on crypto banking, right? And it's something where it's like, but wait a second, these guys are stupid, they're conflicting, et cetera. Is there really some guy pulling all the strings? Because it is SEC doing one attack and CFTC doing another attack and FinCEN and the Fed and so on, right? All these guys are attacking in different ways. And if you say, actually, rather than conspiracy theory, it's community theory, what does that mean? Basically, you only need one premise, and that premise is every blue is looking at every action they take and looking at the politics of it. Does it help blue, or does it hurt red or gray? Ideally both. Or, or does it hurt China and Russia? Okay, the ideal is something that gives political advantage to blues and that gives disadvantage to reds or grays. And one way of seeing this is every action is politicized. For example, even the COVID vaccine in late 2021, there was that line that was added to it, which said something like, Republicans will die alone if they don't take the vaccine. I forget exactly what it was, but do you remember that? Like in late 2021? It was something along those lines, right? And it was just not something where— that was the language of a Hutu talking to a Tutsi. That was the language of a Sunni talking to a Shiite when they're at war. That was not the language that you use for somebody who's still in your tribe, right? That is one tribe who's forced to interact with another tribe, you know? So, you know, you have 500 different signals on this showing that Blues— I mean, Blues are nationalists for Blues. That's the thing. They're not nationalists for America. They're nationalists for Blues. That's in return, Reds are becoming nationalists for Reds at the level of Florida. Right? The level of Texas and so on.

So that goes back to my question. If DeSantis wins, why aren't you bearish? Why aren't you bullish on America then?

I think that— I'm not sure that— I mean, what do I think? I'm not even sure 2024 is like a normal election. I think, I mean, the combination of economic crisis, of states flying apart, you know, see, the problem is, okay, let me give the sci-fi scenario. The sci-fi scenario is this is 1989. And, um, by 2 years later, the US as we currently know it is the decentralized states. It's like, it's at a minimum the dollar states and the Bitcoin states, or it's broken into pieces, right? The, the sci-fi scenario is basically something along the lines of red states and purple states, uh, legalize Bitcoin. More than legalize Bitcoin, you see Texas is passing an anti-seizure law. The right to hold Bitcoin shall not be infringed. Okay, that's pretty important. That's really important. There's a lot of other bills like that making their way through different states. Okay, so if shall not be infringed is, is in some states, okay, and it's a fresh bill, it's a new bill, it's something that was passed with intent by the current legislators, okay. And on the other side, you have a bankrupt federal government that is trying to steal all the money, seize all the money like it did to the Russians and the Canadians. That is the kind of thing that can bring the union apart because the first state that breaks away doesn't inherit the debts of the other 50. Red states have generally better finances than blue states. For example, Texas has sales taxes rather than— California's tax is very progressive. And because of that, when there's a bad year and the rich don't make as much money as in 2022, they are very highly levered on that. And so their tax receipts have dropped dramatically. Texas isn't as sensitive to that because it doesn't have an income tax. Okay. So in many ways, red states are just better. They're not like amazingly off, arguably, right? You have to go state by state. But in general, California, Illinois, these states are in much worse shape than red states. And so, and that's why also people are leaving blue states to go to red states. The one exception to this rule is AI and SF, right? And that might literally be something which is like, Gray America. Like, Gray America has like one city or something like that, right? Who the heck knows? The reason I say that, by the way, the new information is that, um, 4 of the supervisors, evidently in SF, are now not ultra-woke. When you have a totally bankrupt situation, it's like a— it's like a black hole. It's like a gravitational hole, and everything that is not outside of the event horizon is sucked into that. Okay. Like, Druckenmiller has made the point that the US isn't actually $30 trillion in debt. It's more like $200 trillion in debt if you include Social Security and all this other stuff. Okay. That is unpayable. It's unpayable. It's, I mean, like, you know, annual tax revenue or whatever is like a few trillion dollars. Okay. You cannot pay $200 trillion. So it has made a bunch of commitments for short-term stability that it cannot keep up. And foreign countries are realizing this. The problem is, if you've got a strong hand and then you overplay it, you get reverse bandwagoning. And so the US, essentially what's happened is, the US was strong and it was a hyperpower, and then an entire generation of people grew to think that hyperpower meant unlimited power. So even as the US declined, they got more aggressive because they weren't chin-checked. Do you know what I mean? Right? So you go from trying to fight like Iraq and Afghanistan to Russia to China, right? You go from the 2008 bailout to the 2020 print to whatever is about to come. And when you print to infinity and you fight something that's stronger than you, right, you lose. You just cannot print infinite money and you don't have an invincible military. And that's like so obvious. But the problem is that the less people have overtrained, it's kind of like Oh, I can go further into debt because I still haven't gotten paid. You know, like this exponential of debt, right? They keep thinking since they haven't gotten chin-checked on it that there is no— the more they go into debt, the more they think they can keep going into debt because there has been no slap in the face of reality. Do you know what I'm saying, right? And, uh, it's, it's interesting because it's something where, uh, the The system has intentionally disabled everything that could give a short-term negative feedback. For example, in 2011, S&P downgraded US debt, and in response, the US opened a federal investigation. Blue America opened a federal investigation into S&P, and the president of S&P was fired. Okay, so what that is, is something— this is why Thiel has said that the, you know, USD/BTC price is the only non-gamed measure In the entire system, basically because everything else is gamed. The mortgages are rated AAA. Okay, the bonds that the Fed marked down are now being bought at par with BTFP. The inflation is transitory. The virus is contained. Okay, all of this type of stuff literally you know the crime rates in SF are low. Okay, all of this stuff is just totally totally fake. It's Soviet. You know, it's really Soviet. And with the Soviet Union, they faked all the stats in the factories, right? The production stats. And the Soviet America, woke America, blue America, it fakes all the stats in the markets. Like, you know, people talk about, you know, the VIX. People think, you know, gold prices, VIX prices. There's something called the Exchange Stabilization Fund. This is like, you know, Greenspan has this thing, the plunge protection team. Many people think that the Fed is buying puts and calls and so to just kind of keep certain prices in a certain range. So it's not really a free market, it's a controlled market. Okay. And of course, you know, they don't have to disclose what they're doing. They have market participants who will do that. They're like spotting JPMC the money to go and buy other banks so that it seems like an acquisition. The entire system is set up to do this 3-card monte and to hide any short-term penalty, right? But it's like you've been just— remember the whole thing about apathy and panic, right? So you've been juiced full of painkillers, right? While the Fed has amputated every body part, so to speak. Okay. And then you wake up and you're like, holy shit, what happened? Right? And so you combine that with a foreign environment, which where all the stuff that's built, I mean, that's, you know, one more comment I'll make, maybe I'll close it with this is, it's much easier, much easier to launch currencies and to build factories as somebody who's done both. Okay. Launched USDC, which is now tens of billions of dollars or whatever, right? And I've scaled a clinical genomics factory, right? And it's much harder, much harder to build factories and to launch currencies because all the software for a factory is there, but there's also the physical aspect. It's just harder to rerun things. It's harder to debug things. Okay. And you know what? China can scale factories and they can launch currencies. They've got the digital yuan. They've got WeChat. They've got Alipay. They've got built-out networks. That part is not actually that hard. From a— see, the thing that people don't get is a huge difference of 2023 versus 2008 is 2008 was before Stripe, it was before Bitcoin, it was before Ethereum, it was before the digital yuan, it was before WeChat, it's for Alipay, it's for smaller things like PagSeguro in like Brazil or GrabPay in Southeast Asia, Yandex Money in Russia, uh, Klarna and all these other, you know, whatever. Actually, I don't even know what Klarna is doing. Maybe they got a markdown rate. But point is There's a zillion fintech and crypto companies, okay? And there's, there's, I don't know, 100x, 1,000x, 10,000x as many people who can code them as there could in 2008, okay? So this is something people aren't factoring in. If you think of the dollar not as a piece of paper, but the dollar as a network, yeah, it's a huge network. It's got this giant network effect, but it's actually not that hard to replace the dollar as a network. Russia just showed you could do it in less than a year. China has done it. They're walking on their own hind legs. Saudi has done it. Iran is doing it. France is doing it. Brazil is doing it. India's got UPI, by the way. They're another huge thing. It's not just China. They've got UPI, and they've got massive domestic adoption for repeat payments. It's not going to be adopted abroad, but domestically, they're okay. So, from a technological standpoint, it's actually not that hard to replace the dollar as a network. In fact, the dollar network is technologically obsolete. It's like 2 to 3 day wire transfers, you know, uh, for international wires. It is 9 to 5 hours for banks. It's all these stupid things where obviously crypto is better. And obviously on a technological standpoint, of course, from a surveillance and other things, it's worse. But, you know, the digital yuan is technologically better. If you, you know, the, the Fed's— the, the US federal government is trying to roll out a CBDC equivalent FedNow. It's not called a CBDC. There's technical differences from a CBDC. And that's intentional. So, it's not a CBDC, therefore, you have nothing to worry about. Actually, you do, because the main things that you care about are FedNow means every payment centralized through the Fed. They can see your payments. They can freeze payments. It becomes easier for them to do what they did to the Canadian truckers. They can do it as a matter of policy. They can micro-target. It's not like a blunt instrument. It's like a fine-grained thing. There's just a huge overestimation of this network effect of the dollar. Technologically, it's easier to replace than it ever was. The only things that are remaining are the political and social support, right? Will another country use something different? And do you have to get a bunch of people to do it at the same time? Guess what? The sanctions have accomplished that. And within the US, they've also accomplished it because hundreds of millions of people have heard about Bitcoin. They've heard about Ethereum, right? They have heard a whole story about the Fed. There's Ron Paul, there's Peter Schiff. There's like guys who literally talk about this all day for the last 10 years. Right? So you have alternatives within the West, socially, politically, technologically, alternatives outside the West. People just aren't adding all this up. That's what I mean. It's several different factors. It's a financial, it's the internal political conflict, all the Make America States Again. It's the external, which is China's actually strong. And it's the technological, which is it's easier to scale these networks. And they're just overestimating Again, it goes back to that premise. Do you think that you can print infinite money? Do you think you have an invincible military? Those are actually the same premise. If you think that and you think it on a religious basis, I can't argue with you and go ahead and, you know, like, go do your thing. And it's also true, by the way, that that kind of base rate establishment sort of person is usually correct in the sense that they're like a weather predictor who says tomorrow's weather will be the same as today's. That's actually— it took a long time for weather prediction to beat that, right? It took a long time. It's like saying beating an index fund. It's actually hard to do that until it's not, right? And until predicting tomorrow will be the same as today is just absolutely not true. That wasn't true during COVID And generally, it's really not true in tech. Tomorrow can be very different from today, right? AI is very different. Cell phones, mobile phones, huge difference. Media, if they planned on tomorrow being the same as today, they got killed on that basis. China, they're much stronger today than they were in the past. So the base raiders, I think, in general are getting wrecked on many things, but they still think that fundamental system underpinning it all, that world order that the Western president is trying to hold onto, that that will somehow remain stable when everything else is going away, when the media power is going away, when the manufacturing is going away, when the money is going away. I don't think that's the case, but we'll see.

I think that's a good place to wrap. This has been a fascinating deep dive into the It's the fiat crisis. Balaji, thanks for coming on the podcast.

Upstream with Erik Torenberg is a show from Turpentine, the podcast network behind Moment of Zen and Cognitive Revolution. If you like the episode, please leave a review in the Apple Store. Secure Frame is the leading all-in-one platform for security and privacy compliance. Get SOC 2 audit ready in weeks, not months. I believe in Secure Frame so much that I invested in it and I recommend it to all my portfolio companies. Sign up for a free demo and mention Upstream during your demo to get 20% off your first year.