Balaji Srinivasan I The Fiat Crisis | Pragma Tokyo 2023

I know all of you have been waiting for this one, so let's get right to it. That is our last interview of the day. Our next speaker is Balaji. As I we mentioned in the morning, a lot of things happened last minute, so he wasn't able to make his flight in person, but we managed to get this set up on Zoom. In addition to a online a video that he recorded about the actual fiat crisis, we're going to cover that he's been talking about for quite some time.

So, what we have next is a quick 15-minute video that he recorded about everything, and then immediately after that we're going to do an extended Q&A with him where we get to ask all of our questions directly. And without further ado, let's welcome Well, let's play the video and then we'll welcome Balaji after the video very soon. So, let's queue that up. Folks, uh today I'm here to talk to you today about uh what I think is coming in 2023, and you know, the timing's always hard to predict, uh but I do think we're at the beginning of something, whether it transpires in months or years or or longer than that, we will see. But, I think we're on the verge of something that's not simply a financial crisis, but a fiat crisis, where what fails on the other side isn't unfortunately just banks, but governments.

And uh you know, without further ado, let me kind of describe what I think uh the context uh for what's coming today is um the ongoing economic polycrisis and how we might be able to adapt. All right. So, uh let's take a look at some slides. So, the concept today is the fiat crisis. What if the long term is now, okay?

And this is a slide from Ray Dalio's uh video, The Changing World Order, which depicts the US in decline and a rising China. And someone has also added Bitcoin over here, and essentially I think what that conveys is that the future order is not simply just replacement by another reserve currency, but a multipolar order where for example, let's say the renminbi takes on or the yuan rather takes on medium exchange along with the Indian rupee and Bitcoin takes on store of value and and Ethereum is, you know, maybe the financial system and all of them contest the US dollar system of control and then we have all kinds of, you know, decentralized exchange stuff for for exchange rates. So it's not just that the dollar quote fails and goes away and has a single replacement, but it's multiple replacements. It gets unbundled in a sense, okay? So that I think is one of the potential long-term outcomes.

But first let me talk about what the crisis is. What if the long-term is now? And what is the long-term? So let's talk context, crisis, and then change. Context.

We kind of know, if you're an American, if you have even a glancing familiarity with the US, that the US national debt is unpayable. It's past $31 trillion, $238,000 for every family. This is far in excess of US household savings or or what have you. And uh that national debt just keeps getting larger and larger. This is a graph uh that someone made where, you know, this is showing, you know, annual tax revenue.

This is like, you know, deficit and the debt gets added to by a number of measures. Um but it's just been expanding across parties for a long time and now it's many manyfold larger than even revenue each year, which would mean um it would take quite a long time to pay it off even if all the tax revenue each year was devoted to debt and it won't be. So this debt just keeps expanding, okay? And the thing is though investors know the United States can pay the debt because it's doing it's own currency, so it can always print the money someday, okay? When that day comes, if that day comes, that's called monetizing the debt.

And because it basically spends down the uh full faith and credit of the US government and it pays the debts it's $1 for $1, but it prints so many dollars that the purchasing power of the dollar is gone, that would be the end of this financial system and the beginning of the next. Uh Ray Dalio wrote a whole book on this and a video, which talks about how this is coming in the not-so-distant future. It's called Principles for Dealing with the Changing World Order. I recommend you read it. But he kept it abstract.

He kept it with cartoons and so on, which was good because it sort of distanced it from from daily events. Uh but but go and watch that, and then, you know, start replacing the cartoons in those videos with with real events. Um and uh and perhaps that long-term future is now. So, uh that gets to the crisis. There's basically an economic polycrisis underway, meaning many, you know, poly meaning many, okay?

Multiple simultaneous crises, where the whole is greater than the sum of the parts. And I want to start with the banking crisis, which tech people should be familiar with. It killed Silicon Valley Bank. Let's start with that first, okay? So, the first question is, how did Silicon Valley Bank die?

How did this 40-year-old bank with $200 billion in assets just go to zero overnight? With depositors getting no warning whatsoever from regulators, okay? So, people queuing up outside. This thing has should be in business for so many years, just suddenly just died in like 2 days. It wasn't a continuous process.

It was digital at the end. Just it was one and then zero. So, how did it die? And the answer is it was killed along with many other banks. First Republic and Silicon Valley Bank are not alone.

Look at lots of other banks. They all show the same pattern of gigantic unrealized losses starting in 2022, which essentially, you know, make make the bank having having negative equity, okay? Meaning it it has In this case, the technical term would be um it's uh its assets on a mark-to-market basis are insufficient to pay for its withdrawals, even more than the typical fractional reserve situation. So, the bank was killed, but how did all of these banks die at the same time? And who is the killer?

Well, you know, we we know that if if lots of banks are near and hundreds are already fully insolvent, how did lots of banks die? This is not a single bank problem. It's not one bank making bad decisions about tech investments. It's all the banks or many banks. So, the answer is the killer was the central bank.

Okay, this is now starting to be admitted how Fed shrapnel killed Silicon Valley Bank, but it's more than shrapnel. It's more like the main bomb was targeted on the banking system. The central bank, the Fed, bankrupted many banks and then, I know this sounds crazy, but the central bank, the banks, and the bank regulators literally covered this up until SVB blew up, after which the Fed printed more money to cover it up. Okay, so let me kind of show you how that happened. Okay, that sounds incredible, but here's the sequence of events.

First, the Federal Reserve sold a ton of bonds in 2021. There's there's backdrop to this further is printed money during COVID. Banks are binging on bonds, but not because they wanted to. This is August 2021. Banks and all these other financial institutions loaded up on super safe government bonds because, you know, consumer loans, you know, uh weren't there.

People weren't taking out um taking out loans since um they had so much printed money. So, banks binge on bonds, the Fed printed money and projected low rates forever. Then, it hiked rates all the way to the moon. Now, you don't need to know too much about like, you know, the Fed or what have you to know that if you hike interest rates up very very fast, uh well, all the bonds that you sold over here, they were giving like 0.1 or 1% or whatever interest, um it's not exactly this rate, but it's like a related rate.

Let's say it's like 1% something interest. You sold the bonds over here. Now, bonds you're selling are like 4 or 5% interest in just a few months, which means these old bonds are relatively much less valuable. And so, that just destroyed, devalued all the portfolios. Essentially, what happened is they sold a bunch of assets, these bonds, and then immediately devalued them dramatically.

And what that did is it caused uh enormous losses across the entire banking industry that the Fed was aware of. Uh that instantly killed hundreds of banks. So, for example, at the end of 2021, there were only four community banks that were, you know, let's call it insolvent to just to, you know, to give a um, colloquially understandable version. By June 30th, there was 333. And this is a publication by the Federal Reserve Bank.

So, how did this number increase by 75x in 6 months? It's because the Fed basically killed the banks by with these rate hikes. They even admitted the rising interest rate environment has led to unrealized loss positions. So, Fed killed the Central Bank killed the community banks, okay? And the And this is from the Fed itself.

We're talking hundreds of billions of dollars in losses. This is a graph from FDIC, okay? This is like, you know, negative $620 billion in losses. That's an official FDIC estimate. Unofficial estimates, 2.

2 trillion in losses. That's a Stanford estimate, okay? Uh, but wait, there's another number, which is maybe it's more like 18 trillion. Is it all bank deposits? We don't even really honestly know what the number is.

That's all bank deposits, an estimate of it. And it is being floated that would just basically print money to backstop everything. Um, not, you know, not just 250,000, but all 18 trillion. And of course, this is something which the Fed caused this problem. So, you know, quote, doing a bailout, it's not something which is like a normal bailout.

It's not like the bank took a risk that was some atypical risk. The Fed killed all the banks. If it was one bank, it's a bank problem. If it's all the banks, it's a central bank problem. So, this is like, you know, printing money to solve the problem the Fed itself created.

So, the the thing is, the the exact number, we don't know what the number is. Is it Is it a 620 billion? Is it 2 trillion? Is it tens of trillions? Uh, or 10 tr- 18 trillion?

Don't know. We do know is the printing has resumed in earnest with something called the Bank Term Funding Program. And there's going to be more programs that will follow. And there is no cap, okay? This basically This is something where, uh, they they are In my view, we're in end game.

So, that's that's a lot, but it's actually just the start of the cascading polycrisis. So, economic polycrisis, there's a debt ceiling crisis. So, the market estimated probability of sovereign default of the US is at an all-time high because of the debt ceiling vote that's coming up. Since January 19th, the US has uh not been able to issue bonds because it's hit its debt ceiling, and there's a huge fight over this coming up, okay? Um there's a municipal crisis.

Blue states and cities are going to be bankrupt without money printing. There's a Wall Street Journal article, "The Coming Biden Bailout of Blue States and Cities." All those $300 bus lines coming due. There's a bond crisis. It's not just banks that bought the bonds.

Lots of other All bondholders who bought bonds before 2022 were crushed. There's the commercial real estate crisis. Morgan Stanley is forecasting something worse than in the great financial crisis for commercial real estate. By the way, the great financial crisis was pretty bad. That was one thing, arguably.

It's actually more than one thing, but if this is worse than that, and this alone took down the economy, the world economy, well, commercial real estate. There's a Nord Stream crisis. Basically, the bombing of the pipeline in Europe. It is now being widely reported that uh the US did it. Um Seymour Hersh had an article that came out.

Basically, hasn't really been knocked down, and a lot of people in the European Parliament believe this is true. This is Sabine Da Daltan. I'm probably pronouncing mispronouncing that, but um a German elected official saying that, "Hey, actually, we need to we need to look at this. The German government needs to uh see whether or not uh Nord Stream was blown up by the Americans." So, European allies like France and Germany are breaking away from the US over the economic damage that's being caused to them.

Then, of course, relatedly, there's the Ukraine crisis. You know, on the order of $100 billion in new expenditure, plus obviously massive cost to human life, global trade, all these things. There's a Taiwan crisis. So, another potential massive new expenditure for for the US and the world in the middle of this existing budget crisis. There's a dedollarization crisis.

This is a whole slide deck in its own right, but it's um it's a number of different countries. It's China, Russia, Iran, Saudi uh trading in yuan, but it's also India trading with the UK, Israel, Germany, New Zealand in rupees. It's China doing deals with Brazil and France in yuan. It's um essentially a bunch of countries going back to their local currencies. For China, it's the yuan.

Uh but for India, it's a rupee. For Brazil, it's a real. For uh France, it's going to be the franc. They all want to de-dollarize because the dollar is not simply like a piece of paper. It's a network.

And if you're on the dollar too much, then the US can de-platform you from that network at any time as happened to the Russians or uh you know, in Canada as happened to the truckers. Um and they don't want to give up that level of sovereignty. So, they don't want the extraterritoriality of the US dollar, okay? So, um we won't you know, that they'll become vassals. This is what Macron has been saying and this is why he's pushing for de-dollarization.

Uh and so, that means that even the neutral parties, not China, Russia, Iran alone, but lots of neutral parties, France, Malaysia, Brazil, India, lots of these countries in the middle are now breaking away from the dollar. There's an auto loan crisis. Look at these spiking default rates. And again, this is looking like, you know, the run-up to 2008, but I think the where it spikes to will be will be higher than that. This is a massive issue that could crash the economy on its own.

There's a credit card crisis. How about that? All-time high of $930 billion, March 3rd, 2003. Okay, so consumers don't have money. There's a student loan crisis, okay?

That $1.8 trillion student loan debt, all these people had uh a 3-year pause, and now, you know, that future, that long-term is coming due, okay? There's a private equity crisis, okay? Blackstone REIT limits investor redemptions again in March because people were pulling too much money out of this private equity firm. There's the insurance crisis.

You know, the backup plan for all these crises is is insurance, but what do they hold? They hold safe assets. They hold they hold bonds. And uh and bonds and market this this has also been destroyed as I mentioned, you know, the the Fed devalued a bunch of these, okay, especially if they bought them before 2022. So, these long-term bonds have also gotten crushed.

And all of this is against a backdrop of a divided low-trust society where, you know, there's no trust in media to report the truth. This is, you know, at this point bipartisan. And you know, this is, you know, shows like how unified the US in in in many ways was in the 1940s, 1950s how it's slowly come apart. And this is in 2011 at the congressional level was already polarized. And it's also highly polarized like this now at the level of the individual.

It's not really one country, it's two parties, okay? It's not there's arguably there aren't Americans, there are Republicans and there are Democrats. And Democrats don't marry Republicans. 96% of Democrats aren't married to Republicans according to one study. So, it's becoming more and more partitioned.

So, it's not like one country that'll pull together in a crisis. It's it's really two. You saw this during COVID. Whatever position one side took, the other side took the opposite and they switched multiple times. And so, what that means is if this is the true crisis, if this is a fiat crisis, we're going to see great change.

It's not simply going to be a recession or depression. It's going to be a change of the world order. And so, what comes next? It's very hard always to predict timing. In my view it's 10% chance a fiat crisis happens in months, 70% in years, 90% decades, 1% in centuries.

So, I think, you know, it's months to years probably, but I may be wrong. Um I don't think it takes more than 10 years for it to happen, but there are experts at kicking the can. So, maybe maybe they can kick the can another 10 years. I I I doubt that is the case, but who knows. So, if this is happening, if we're now seeing the decline of the dollar and the rise of, you know, the yuan and the rupee and so on and the rise of Bitcoin and Ethereum, well, what that means is the state itself becomes counterparty risk and you should think about what happened to the Russians or the Canadian truckers or anybody else like that who is adverse to a Western government and start thinking about private keys first.

Um and so, you know, I'll leave you with that, you know, that that new financial system uh you're going to need to build it a little more quickly. So, um that is uh the talk on the fiat crisis. Thank you very much and let's discuss. Awesome. Balaji, welcome to the live stage.

Uh thank you so much for that talk. We're uh a little bit sorry that we couldn't be here in person. Uh can you all Can you hear us? Just uh just got to I Perfect. I can hear you.

Can you hear me? Yes, we can. Awesome. So, Okay, great. what we're going to do is we're going to do something hacky which is he can see and hear us, but this is a laptop that's going to have him see all of you.

And uh we're going to just position that so the audience question is visible. But the rest of the setup is working as extended. So, wave hi to everybody. Um we're going to start taking questions. If you have any questions for Balaji, please come on here and line up.

We'll uh we'll start some questions and as people are showing up, um I'll I'll kick us off with our our first question for today which is you can list it all these things and seems like things are not really that optimistic. Um that's not really a good thing to hear when uh the event's about pragmatism. Um but let's assign some probabilities to how serious or how near term these things are and let's say the probabilities that we assign are high for the near few years, next few years, if not few months. What do we do in that scenario? Um are you asking me?

Is that a question for me? Okay, great. Yeah, and so by the way, for everybody here, uh I'll take a bunch of questions and then, you know, I I I said I you know, I wanted to come in person uh I I I just couldn't this time, but you can all DM me on Twitter. I may take a little while to respond if 100 people DM me, but but I will try to get through it. So, if you have any questions, let me know there.

Okay, but just to Karthik's question. So, the thing is, I'm not a doomer. At at at worst, I would consider myself a doomer optimist, which is to say, yeah, this current system might be doomed, but we have to think positive and think about what something better is on the other side. And um you know, I I obviously have been talking a lot about Bitcoin on Twitter. I've got like a video update coming out on on the bet and other types of stuff.

Just working through legal details. But um but I do think that uh you know, let's say that you give even a 10% probability to what I'm what I'm talking about. That is a radically different future. That's a future where the you know, US government is now counterparty risk. Where all of you are like Canadian truckers or Russian nationals, where if you have property in US bank accounts, US dollars, um stocks, even real estate, those things could be unceremoniously seized, taxed, frozen, whatever, indefinitely.

Just to pay for all of these unpayable debts. And by the way, if you go back and watch The Big Short or you go back and watch Margin Call, that'll kind of get you in the right headspace because the big banks were actually counterparty risks at that time. Things that people thought of as institutions like Bear Stearns or Lehman just went down and you know, all the uh the money was gone. FTX's collapse is like that. SVB, 40-year-old bank, people had a heart attack when you know, for at least a couple of days, three days, four days, they couldn't get their money out.

So, the things you think are safe or may not be safe. That's the big thing to to rethink, right? Not just banks, but governments. In that event, in the event that the government is counterparty risk, the people who are best positioned in the world to deal with that are folks like yourself. Where it is cryptographic private keys that are actually property.

And possession is 10/10s of the law in a sense, right? If you actually have the private keys locally, you have it. And if you don't, you don't. We also understand this is just a better way to build things, um, you know, for a variety of reasons. You can do, you know, provable end-to-end encryption, all this type of stuff.

But, basically, if you even assign a small percentage probability to what I said, and again, I gave a bunch of different links, a bunch of different references. I talked about a bunch of different crises. I'm not making up this stuff. Tweeting about it isn't causing I'm simply observing it. If you If you just take that Morgan Stanley headline alone, which talks about how the commercial real estate crisis is bigger than 2008.

2008 was a really, really, really big deal. So, you should seriously consider counterparty risk in everything you're doing and toughen up Ethereum. Toughen up what you're doing. One way of thinking about it is Maslow's hierarchy of needs. At the very base of Maslow's hierarchy, you need air, right?

Then water, then food, and then all the way up to the top. If you're building things in crypto, like air is sort of like Well, of course, there's air itself, but air within crypto might be access to banking. Okay? So, building relationships with local politicians or crypto-friendly sovereigns, like El Salvador, like Florida and Texas in the US, uh, maybe like South Korea, where I understand the president is very pro-Bitcoin. Thinking of that as a first-class priority is one very important thing.

The second thing is just to think about simpler tools that could be useful more quickly, because what I think might happen is something like the surge in remote work. You know, the coronavirus came to the US and then 50 days later, 500 days later, we were we were the US was in lockdown. Happened very fast. And and remote work suddenly surged and had 10 years of growth in about 6 weeks, 8 weeks. Something like that might come for crypto.

I'm not saying when I I It's hard to say when, or rather, you know, I think there's 10% chance it happens within months, 70% chance within years, but it could happen quickly. And so, what is like the simple kind of thing that you can do that would be useful in that environment versus some very complicated NFT-ish kind of thing up over here. What is closer down the stack on Maslow's hierarchy of needs? Like crypto banking, crypto payments, crypto UX. What if 10 million people wanted to use your product tomorrow?

I recognize, of course, that that hasn't happened yet, but it's something to think about if you assign some probability to the scenario. Okay, Karthik, back to you. No, that's very helpful. I'll I'll let our audience questions kind of jump in. So, I'll let you ask the first question, please.

Yeah, okay. Um don't know where to look, but uh Balaji, thank you for your presentation. Um Graham Smith from bitcoin.com news here. In your view, what are the next practical steps on the road to setting up network states?

And what sort of work is being done by yourself or others such as DAOs or foundations to help spearhead moves in that direction? It's a good question. So, what I'm personally doing So, obviously, I think the network state is is actually even more important in some ways after the fiat crisis because there's going to be a deficit of trust in the world. If you do have something like hyperinflation, if the US government does default, then a lot of people will be drawn to the ultra-low trust idea. I mean, there's there's a lot that is Bitcoin maximalists will feel that they're being proven right about everything.

The problem is that Bitcoin maximalism, when taken to its extreme, is a recipe for like a zero-trust society. And I think some societies will kind of be like that, a very low-trust society. Some societies will be like that, and that limits the scalability of a society because you're you know, if you take it to its extreme, you're you're going in getting your own water out of a well, right? You're going in chopping down your own lumber. You're so capitalist that you're against division of labor.

You're so low-trust that you can't trade with anybody. You need some degree of trust. You need some degree of thinking about public goods and the collective and the greater good beyond oneself, even if that has just been betrayed, especially if that has just been betrayed by the previous state. And so, it's kind of like centralization, the decentralization is is coming, and then we need recentralization, but consensual recentralization on the other side into these small clusters. I recognize that thinking ahead, but we need to think ahead because these changes may come very quickly.

So, at point, what I'm doing on the network state is I'm writing network state V2, and I'm creating a a video and and so on and so forth, videos and all the content. And that itself is a whole thing, because a lot of those things that I thought were going to come in 10 years might be coming in a few years, you know? So, that's what I'm doing. And that that itself is like a whole thing. Um I may fund, you know, more, you know, DAOs and network states and so on, but a lot of that stuff is kind of happening in parallel.

I've been gratified to kind of see that happening. And the biggest thing about it is just building high-trust communities, as hard as that is, with physical meetups, where people know each other and know each other in person, and that's the seed for rebuilding things after what follows. One thing I'll also say, by the way, um just to kind of calibrate this a little bit. You know, I I I also called COVID-19 early on. And and one thing that's interesting about COVID, 3 years later, is on the one hand, we know that it infected 700 million people, killed 7 million people, uh you know, injured quite a few more.

Um it, you know, caused gyrations in markets and banks and the government and so on. A. But B, 3 years later, you know what? Life went on. And if you'd said both those things in January 2020, that this is going to infect 700 million people and millions will die, but, you know, life will go on in 3 years, you would have been considered that that would have been the the most non-consensus opinion of all.

Okay? That things would readapt to a new normal, that we'd come back to normal after it. But, of course, humans readapt. It's World War I and World War II, all these crazy kinds of things and then we come back to a new normal afterwards. It's not to say that what happens isn't going to be crazy, but the network state is in part a recipe for a new normal.

And the other thing is that, you know, with the Roman Empire, when the Western Roman Empire collapsed, the Eastern Roman Empire actually remained for a while. And I actually think Western fiat will collapse, but I think Eastern fiat, uh unfortunately, the Renminbi, you know, the yuan, but also uh the Indian rupee and possibly other currencies like, you know, Dubai's currency, the Singapore dollar. I think Eastern fiat will probably continue. Um but Western fiat may collapse. So, there'll be a greater degree of, you know, Bitcoin maximalism in the West and less so in the East.

So, kind of take taking those sort of global dynamics, all this stuff is going into the network state V2 and you can critique those assumptions or or modify them as you see fit. That's what I'm doing, A. What I think you guys should be doing is thinking about building high-trust societies with physical meetups where you can physically verify people. That'll also be necessary for AI. Proof of human becomes goes from a nice-to-have to an absolute necessity.

All this stuff we're doing in crypto, you know, it's it's funny. You know the meme, Graham, like uh we're so back, you know that meme? Actually, I don't know. Okay, we're so back. It's a meme on Twitter.

It's like, you know, there's something that happens and people are like, we're so back, dude. So, and then there's the other related meme is, it's so over, right? So, this is both at the same time. It's so over and we're so back because in this post-fiat crisis kind of world, like, you know, where AI has risen, where China has risen, where, you know, fiat has collapsed, where you you know, it's a low-trust society, you need to cryptographically verify all kinds of things. The identity of somebody on their side, the fact that they actually have the money they say they do.

Everything that you're doing in crypto becomes much more valuable if you can survive. Um and it goes from Web3 as, oh, this stupid thing where people are dealing with a totally adversarial environment to this absolutely necessary thing. Much like all the stuff that was mocked before the pandemic like, "Oh, look at these stupid guys with their delivery services." And then it became like absolutely essential during lockdown. Once we have digital lockdown, which is coming, and that's capital controls, wage controls, price controls, you know, CBDCs that get rolled out to try to block the exits.

That's actually easier in some ways to roll out than physical lockdown. Digital lockdown, the alternative to that, which China can easily roll out, which Western states will try to chaotically roll out, the alternative to both of those is freedom, is cryptocurrency, is Bitcoin, and I believe it is what you guys are also building. So, that's how I think about it. Go ahead. Thanks very much.

And I think I think the network state is part of that. I think it's I don't think it's the only thing, but I do think it's part of that. Hey Balaji, Carlos here from Web3 Beach. So, recently I was invited to Prospera, which is a like a startup city in in Honduras. And I I remember reading a lot about the Asian century coming, right?

But now this pop-up city popped up right next to me in Honduras. So, my question is, do you think people should be aligning with those with those cities more? Like do do they have legs? Well, I'm I'm a seed investor in Prospera just as full disclosure. Assume I'm a seed investor in everything, okay?

But but but I think I think the Prospera CEO is phenomenal and really good and Roatán is really really interesting. It's English-speaking island in in Latin America. My general thesis is actually not just the Asian century, but the inverted century. I I talk about this in the network state, but in many ways our future is our past. Lots of things are flipping.

For example, you know, in 1991 the frontier internet frontier reopened. In 1890 the American frontier closed. Today we have the tech billionaires, in the past we had the robber barons and and the captains of industry. Today we have COVID-19, in the past we had the Spanish flu. And I have I've these examples in the book with the mirror moment being about 1950 because you have centralizing technology going backwards in time like mass media, mass production, and decentralizing technology going forwards in time from the transistor, personal computer, smartphone, internet, cryptocurrency, okay?

Um how does that apply here? Well, one of my macro thesis is to first order every country that had a great 20th century will have a terrible 21st century and vice versa. So, the countries that had a great 20th century were the US especially, but also Western Europe, the Anglo countries, and so on. They were capitalist and recently stable, and so on. Who had a terrible 20th century?

China, Russia, India, Vietnam, you know, like like all these places that were under communism and that were big or socialism and just destroyed over the 20th century with huge refugee flows, mass murder, crazy things happening. Um I think we're and of course South and Latin America. They had currency crises. They had all this type of stuff, right? But now I think we might see a flipening where if Western the Western fiat crisis happens, that's actually like the worst place to be.

The worst place to be is close to blue America. Japan is unfortunately close to blue America. It's got large Treasury holdings, and so on. But it's not like right next to the blast radius. You know, the blast radius center would be like New York or DC or something like that which is totally blue.

And you can go, you know, far out from blue America in different directions. You can go to the red states. You can go to South America like where where Latin America like where you know, Naib Bukele's doing. You can go to China. You can go to India.

And I think the farther away you are physically, socially, financially from blue America, the better off you are. And now the asset like Latin America's experience with currency crises in the 20th century is actually now an asset for it because they'll probably be some of the first to get into Bitcoin and gold as this fiat crisis develops because they understand what currency crises are, at least the smart ones. Other countries will copy probably Naib Bukele. So, I'm actually it it's quite possible that this century it's North Americans that seek to immigrate to Latin America. And this is actually already happening.

You've got all these expats in Mexico. You've got people who have all the options in the world going to El Salvador. You have um you know, it's it's the Middle East this century that's at peace potentially if you just look at the peace between Saudi and Iran. It's Asia that is capitalist if you look at, you know, India being, you know, capitalist as post-socialist and China going quasi-capitalist. So, all these things are kind of flipping around.

Conversely in the West, those who are still stuck under the dollar regime, when the weight of the devaluation hits, the dollar holder is the bag holder. The weight of the devaluation rests on those who are still very very very heavily involved with Blue America. And so, South and Latin America's distance from it in some ways actually could be an asset. So, it's not exactly the Asian century. It's like the inverted century is how I think about it.

Again, I may be wrong, but that's my mental model and you can critique it, but at least that's that those are my thoughts. Cool. I just got invited back, so hopefully I get to see you there. I'll cross my fingers. Okay, great.

It's a wonderful place. I'm very The other thing is Miami has a chance of being the Singapore of Latin America. I mean, it kind of already is. If you're from Honduras and and, you know, Argentina and you want to ink a deal, people tend to go to Miami to do that deal. And uh you know, with leaders like Suarez in Miami, Naib Bukele arising, um lot of Bitcoin sentiment in in South America, uh Latin America.

I think uh I think we might see some amazing things. There's a lot of great people there that have been kind of held back by terrible systems and and crypto might be the answer there. Hey Balaji. Candle from ZK3 here. Uh it's a shame you couldn't make it in person.

You said we have to build the financial system of the future and the future is now. My question is, what infrastructure tooling and primitives are missing now that are necessary for the future network state environment you envision in terms not only of the financial layer but of governance and everything else is necessary for replacing the nation state. Well, so that's the thing is I as I said just like the Western Roman Empire collapsed but the Eastern Roman Empire stood up. I think the East survives. It's going to take a hit but it net survives and like states fail to a greater extent the closer you are to Blue America the more the level of state failure the more you think US treasuries are risk-free asset the more you think the Fed is all powerful and so on and so forth, right?

So I don't think all states fail. I do think the closer you are to Blue America those states fail. I think the the red states might turn out to be like Eastern Europe or the Baltics where you know, they actually after crash do okay afterwards. It's possible, okay? So it's not just as simple as quote the nation state fails.

Some states do fail however and that's a huge update in the mental model of people in the world. So so then to your specific question on the on the specifics in some ways I'm glad about where we are. Thank God we have Bitcoin. Thank God for Satoshi. Thank God we have the ultra you know for lack of better term paranoid zealous um you know, intense Bitcoin maximalist even if I disagree with them on so many things um I'm actually glad they're out there net net all overall.

I'm also glad we have the scale like all the changes to Ethereum have got emerged in, right? You can withdraw from staking. The internet bond is available. You you know, like the like you know, it seems like everything has gone well and we haven't seen any bugs surface knock on wood from the merge and so on. Thank God we have Zcash.

Thank God we have zero knowledge. Thank God we have you know, proof of human a lot of the NFT stuff. Um we have a lot of the primitives. We have hundreds of millions of crypto holders worldwide. We have crypto exchanges.

We have DEXes. Uh we have tools that people are building on decentralized Discord. Um so we have a lot of the primitives. What I what I think the next step is is to not simply think of it as just the state versus the network, but the network state there's different ways of calling talking about that fusion. One way is obviously the titular, you know, the the network state book.

All right, right, right back here. One way is the titular network state book. But another way is the network working with smart people of the state like Naib Bukele, like Dubai, um like, you know, the for example, the president of Palau is crypto-friendly. Think about essentially if you're within the US, it is um red states and purple states. You know, it's Wyoming and Tennessee with the DAO laws.

It's Texas with Bitcoin shall not be infringed. It's Montana and Mississippi with the with the mining laws. It's it's Florida which is allowing potentially crypto companies to use so-called state charter banks. It's Colorado which has accepted crypto for taxes. So within the US, it's like red and purple states.

And and also places even pockets of blue like Eric Adams in New York or or New Hampshire. And and then outside the US it's small states. Naib Bukele tweeted a photo with 44, um I think central bankers from small countries and they will also accept crypto. So that's a if I was to say one big thing that people are not necessarily focusing on, it is making a spreadsheet of people around the world perhaps not tweeting in English. Perhaps they're tweeting in Korean, okay, or or in you know, actually Hong Kong of all places is seemingly more pro-crypto now.

Though obviously, you know, you have to take that with a great degree of caution. Uh you know, but but there's a lot of places in the world that are pro-crypto that you might not know about like small countries like Palau. So if there's one thing to do that you might not be doing, it is find jurisdictions like El Salvador, find jurisdictions like Palau, find places where the state is actually supporting the network, do deals with them, maybe even try and do a deal with the sovereign so they have 1% of your company or something like that so you have an interest in keeping you there locally and seeing you grow. And then you've got state support and you've got, you know, a government in your corner because Have you ever seen the movie Pacific Rim? It's actually popular.

Maybe it's based on Japanese stuff. Have you seen the movie Pacific Rim? Yes no? Yes yes. Okay.

So in Pacific Rim, these gigantic monsters rise out of the ocean and humans can't fight them. So what do they do? They go and get giant robots. And when it's giant robot versus giant monster, then it's a fair fight. So right now this giant monster has arisen out of out of the ocean.

It is the US federal government and it is attacking all of, right, the crypto banks. It is attacking all the tech banks. It's even attacking the fintech banks. It's attacking It's attacking AI. It's attacking every single piece of the future and it's just going all out on this, right?

Against a government, you cannot fight as an individual or even as a company. To beat this gigantic monster, you need a giant robot, a good robot of your own. You need your own government. You need Texas. You need Florida.

You need UAE. You need El Salvador, right? You need the the good states fighting the bad states. Okay? So you need to actually go and find states that you can do deals with.

Those have a ton of hit points. Now it's sovereign versus sovereign, right? It's not you and your 20 or thousand or even 10,000 people. It's 10 million people in a UN represent represented flag or even 500,000 people in a UN flag or it's like an American state and now that's got the hit points and the budget and the credibility to actually fight a long fight with DC. And if they've got an interest in your company, if they've got a sovereign fund or something like that, some deal you can do, they have an economic interest.

This, by the way, is going to a crisis level now within the US. Red states, for For their state level banks, all their funds, because of what the Fed has done, they're flowing out to money market funds, they're flowing out to big banks. Those state level banks are getting killed. So, what red states can do is allow crypto banks to be chartered um at the at the state level. Or rather uh to allow sorry, allow crypto companies to use state level charters uh for for state level banks.

And um then they're basically defying the Fed. They're saying the Fed can't cut off these banks because we're chartering them at the state level. They dare the Fed to turn off ACH and Swift. And this is the same thing that countries outside can do cuz lots of small countries will also see deposit flight to big banks because the Fed has caused all of this uncertainty, you know? And and the way to pull that back is with crypto companies and crypto banking locally.

So, now you have a strained tension on the system where you have the innovators and the smart money that is going to red states and purple states and the banking there or foreign states and the banking there. And you have the dumb money that is running the 2008 playbook and putting it all in the big banks, which is putting it in the Venus flytrap to get eaten by the Fed at the time that it does a dollar devaluation, which I think will will come. So, so I think it's just to summarize, the key concept, the key strategy there is to not think of yourself as necessarily oppositional to all states, but to go and partner with smart states and to literally treat it as a sales process. And it doesn't even need to be a nation-state. It can be a US state, it can be a city.

It just needs to be some sovereign, some mayor, some governor, some president who is tweeting about Bitcoin, tweeting about cryptocurrency, and is willing to take a meeting and may do a deal with you. Okay? So, that's I think a very important way of thinking about it. And once you've got that shelter, then you can roll out a bunch of the stuff. Okay.

Thank you. Thanks. I know it was a long answer, but hopefully you guys got the point. Thank you for that. How's it going, Balaji?

It's DeFi Dave. I'm from Flywheel DeFi. Uh I have a question about an idea that you talked about in the past, which is flat coins. There have been several early attempts at this including Frax's FPI, which is pegged to the consumer price index. And so to you, what does the ideal flat coin look like?

What are some What are some variables that could come into a flat coin? It could be energy, which could be measured in Bitcoin mining difficulty or something else. And how can different network states adopt flat coins for themselves? And do you see one becoming, you know, a new reserve currency? So, I I think what's going to happen is if you think So, first on the second point, right?

The new reserve currency. Um I think what happens is if you think about the four functions of money, right? Unit of account, medium exchange, store value, and then what Andreas Antonopoulos adds, which is system of control. Okay? Those four functions of money are getting unbundled.

Medium exchange is going to the yuan and also the rupee and the Brazilian real and and and whatnot. Okay? Uh store of value is going to Bitcoin um and also ETH and and Zcash and so on depending on those communities. Um The uh system of control, well, actually renminbi, rupee, Bitcoin, Ethereum, they all push back on the dollar having system of control because the Fed is not the root administrator of the yuan. The Fed is not the root administrator of Bitcoin.

And then finally, you know, unit unit of value, that's um that's something which can be resolved by like that that's the last thing that gets unbundled, you know, you already BTC is unit of value on CoinMarketCap for many things. ETH is unit of value in the ETH economy. The yuan is unit of value for many trades nowadays. That's like in some ways the easiest thing to flip over at the end if the dollar devalues. If you have medium exchange and other pieces, okay?

So, rather than thinking of just one reserve currency, think about, okay, the multipolar world means not just um you know, different countries and different uh, you know, companies but lots of different currencies and pieces of the currency as opposed to one thing USD that does everything. So, it's from centralization to decentralization. Okay. Now, um Can you repeat your original question? So, I was just at the point of the reserve currency.

You you you you go to the beginning again. Yeah, so what does an ideal flatcoin look like? What could go into Ah, yes. Okay. Yes, so the flatcoin uh, just to explain to people what a flatcoin is.

If you take a stablecoin, you can divide it into two now separable concepts. A fiatcoin and a flatcoin which differ by one letter, fiat and flat, right? I and L. So, the fiatcoin is just pegged to the US dollar for example. But, if the US dollar is inflating or highly unstable, that's actually less favorable now.

The flatcoin would in theory be something that maintains its price against a basket of goods uh, like bread and other kinds of things and might be helpful in a time of price instability. Now, the thing is it's actually very difficult to do that because um, if for example, there's a true supply chain scarcity of something like I don't know, bread became really scarce, then you have some reserves and if you try spending those reserves to keep the exchange rate of the flatcoin versus loaves of bread, you know, stable, you'll expend all the reserves on that and they'll be gone because there's a real world scarcity that's killing it, right? So, um, I think probably now, you know, I I as I've been thinking about it more recently, I think we're just going to have to accept a time of economic instability um, and the actual flatcoin uh, may turn out to be something that's like a Bitcoin or gold back coin. That's like one option. Or it's like, you know, related to uh, rupees or maybe the yuan though they're not going to let you really do anything with it.

And the rupee is also going to be a fairly controlled um, you know, central bank account. Uh, so so the answer is if you can solve the problem of somehow how to have reserves that maintain the price of a flatcoin against lots of things, you might be able to go with it. But, that's a that's a challenging problem, and it might turn out that you just have people tolerate the instability, and and you go with a Bitcoin backed or gold backed coin, and and then you have the gold window or digital gold window open. And then, of course, people say, "Well, why not just use Bitcoin itself?" Blah, blah, blah, but but I think I think you might be able to to do something like that.

You can do an ETH backed coin as well. So, you just you just kind of say, "You know what? Volatility's going to be a thing for a while." Okay. Um and one way to think about it, by the way, last thing I'll just say is, one way to think about it is you've seen the graph of like US dollar inflation over time, okay?

And I'll just put that graph up if people haven't seen it. One way of thinking about it, though that people don't normally think about it this way, is that that was a trade-off to get uh long-term devaluation for short-term stability. And Bitcoin makes the opposite trade-off, right? So, you see the rise and fall of the dollar. Can you guys see that on the screen?

Yeah. So, you know, 100 bucks is then worth, you know, now all like, you know, way less than like 10 bucks if you held it all the way through due to inflation. And so, you know, basically, over a long enough time frame, 100 years, the dollar loses 99% of its value. But, what's happening is the Fed is printing to keep it seemingly stable over here. So, it's like a controlled demolition of the dollar.

Um so, you lose the purchasing power over the long run, but you maintain in the short run. Bitcoin is the opposite, where it gains in the long run, but it's highly volatile in the short run. And it's possible that you could, you know, that's another approach to a flat coin is you take that as, "Okay, I've got some Bitcoin reserve, and I'll spend that reserve in order to maintain prices flat for a while, but if that reserve exhausts, it may not be flat after that time period cuz I need to spend that reserve to maintain price stability, okay?" So, that's a that's another way of thinking about it. Okay.

Thank you. Hey biology. uh Bradley Lowen from Coin Post. I'm wondering uh when you look at states that have access to a money printer um and how closely they cling to that power uh and then you look at uh how the only state to make Bitcoin legal tender was one that didn't have its own uh money printer. It was already on the dollar system.

Do you think there's any chance or uh even incentive for any state to give up access to a money printer uh peacefully? Um So, uh unfortunately, I you know, I I'd love everything that I that I was talking about to be totally totally peaceful, but uh you know, Ray Dalio projects um you know, conflict in the future. Many other people project conflict in the future. Uh what I think is though let me qualify your question, which is lots of US states, red states and purple states that do not have access to the money printer themselves, are also very pro-crypto. As I mentioned, it's Wyoming and Tennessee, Florida, Texas, Montana, Mississippi, Arkansas, Colorado, New Hampshire, right?

All of those states are passing pro-Bitcoin, pro-crypto bills, right? Lots of red states, lots of purple states. It's I I don't know if it's 50% of the US by states, but it's in that ballpark. Okay? It's like at least 40-50% of US states are pro-Bitcoin, pro-crypto.

So, that's not just the So, that means there's internal you know, dissidents and there's external dissidents. And externally, you're seeing um you I mean, this huge things by the way are happening. One way I think about it is, if you're blue America, you're about to suffer the ABCs of economic apocalypse. AI takes the jobs, Bitcoin takes domestic power and power over currency, China takes military power and and you know, global global power, right? So, the ABC is AI, Bitcoin, China, right?

Karthik, you like that one? It's it It's pretty good. It's pretty good. All right. Yeah, so if you're like a blue American bureaucrat or lawyer or whatever, AI takes a job and then you were writing some financial regulations or something and then Bitcoin and China are taking power away domestically and abroad, right?

All of that's hitting at the same time and it's hitting on top of the Fed's mismanagement. So, the blue Americans squandered the massive massive lead that they had. So, I think the answer to your question is actually it might be more peaceful than we might think and the reason is lots of guys who are in the middle, okay? So, of course, we know China, Russia, Iran are kind of on one side versus the US, you know, and blue America especially on the other side or the US establishment more generally. It's not just blue America.

Lots of reds as well, but you know, let's call it the US establishment. But, what's happening now and it's very underreported is if you go and look at recent statements from a bunch of different countries, okay? I'll name some off the top of my head. Uh from Netanyahu in Israel, from Bukele in El Salvador, from Malaysia saying they're getting off the dollar, from Zambia and Kenya in Africa, from uh Saudi Arabia saying they don't listen to the US anymore, from the UAE uh head meeting with with China and people trading in yuan for for oil, uh from Germany, you know, having a representative saying get the US troops out of the country because she was mad about the Nord Stream bombing credibly being assigned to the US based on Seymour Hersh's reporting and even the Washington Post is starting to admit that might be true. Uh you're seeing France, Macron, go to China and come back and say France needs to dedollarize.

You're seeing um uh this guy, Charles Michel, uh Charles Here, I'll tell you his I'm probably butchering his name. Um Charles Michel, uh the president of European Council, is basically supporting Macron in this saying, "You know what? We don't want to just be an American colony. We don't want to just be pulled into a fight with China on the other side of the world. We've got this whole Ukraine thing we're already, you know, stuck on on on on gas and so on.

So, what's happening actually is when you add that up, by the way, that is not just China, Russia, Iran. That's Latin America, like El Salvador, that's Africa, like Zambia and Kenya, that's the Middle East, like Saudi and UAE, that's Europe, like France and Germany, that's Southeast Asia, the entire ASEAN block, it's not just Malaysia. All of them at the same time. Oh, and of course India is doing deals with with everybody on rupees. And of course there's China, you know, very big dog.

Um even Japan, uh you know, we'll see what the new, you know, uh the the new central bank president does, but even Japan has, um you know, like wanted to buy Russian oil uh in defiance of what the US wanted it to do. Uh and it's doing other things it's like it's jailed the sky read Alconis that the US didn't want them to jail. Um so, you're seeing essentially a global revolt against the dollar specifically and, you know, let's call it being an American colony more generally. If in 1776 America declared independence from British Empire, lots of countries from Malaysia to El Salvador to, you know, Germany to France to, you know, like UAE, they're declaring independence from American Empire. Okay?

That's a huge deal cuz that's all happening at the same time. And people are starting to see in the US like a political Randsing America's lonely fight against China that it's like basically something where all the stuff from the Trump era and then the Biden era of essentially acting unilaterally and saying, you know, F U to everybody in different ways. There's a red way of saying F U and there's a blue way of saying F U. All of that is now caught up where it's very clear the US just wants allies, quote, to be pawns, you know, that they're supposed to bankrupt their economies, get into wars, all sorts of it's very one-way relationship. Um and uh you know, this is something which is if enough people do that at the same time and it does seem like I mean for example turkeys you know everybody is de-dollarizing and pulling away from fighting Blue America's fight at the same time.

That's a very big deal. So that may turn out that rather than spreading the dollar devaluation across 4 billion people um it's spread across 150 million people. And so rather than taking 10% of the wealth of you know 4 billion people or or 20% or 30% instead you're taking like 800% of the wealth of 150 million people. If you see what I'm saying? People opt out before.

It's kind of like if you got if you've ever seen the movie Margin Call? Big time. Okay. So in Margin Call the entire movie I recommend everybody watch it. It's a bank and it's got these massive losses on its books.

And basically it's like okay can we dump them on the other guy, right? And that is actually what the US system is trying to do right now. It's trying to say nothing is wrong, stay in the banks, stay in the dollar, go to big banks, buy three-month treasuries, lock up your money, stay in the system, everything is fine, everything is fine, everything is fine, bam. Okay, just like lockdown. Everything is fine, of course totally paranoid bam, doors closed, okay?

And this happened you know if you you know there's this guy there's a central banker called Jean-Claude Juncker. If you go and look at the Cyprus haircut, that's exactly what happened. Everybody said oh you know the banks are fine, totally fine, the banks were allowed to run ads, talk about how safe and secure they were, bam, it's gone. Okay? The whole point is for you to be bait like you're not going to get a warning from the establishment.

Like I'm I'm the warning, okay? Um and again go watch Margin Call, go watch The Big Short. One of the things that was critical about that by the way is all the dials, all the warnings were broken, okay? You can go and look for example S&P went and downgraded US sovereign debt in 2011 from triple A to double A after a debt crisis. Do you know what happened?

I don't know. President got fired the not the president not of the US but the president of S&P got fired Deven Sharma and S&P got a federal investigation for its troubles. Okay? Remember how during the mortgage crisis all the ratings agencies Moody's, S&P they rated these bonds at triple A when they were toxic waste, right? Why are they doing that?

It's cuz basically the downgrade of the ratings is so material that it's actually worth more to them to fake it until they can offload it onto some other poor sucker and then they downgrade it. And then you you hear about the mortgage crisis in September 2008 but the default started in Q2 2007. Okay? So that's what's happening is the system right now is trying to shunt the cost to those who are the least politically connected, the least aware of what is happening and uh and then they'll announce oh some you know, we all need to band together now and we we got we got to pay our all the costs that they came up with all the failures of all the banks everything the Fed did they're going to say oh it's your it's your duty to bankrupt yourself for the Fed's hijinks, okay? And I I know that sounds cray, okay?

I'm going to put out a talk which has like a zillion more references on this but uh but that's that's essentially the concept. Go and look at the Cyprus haircut and how depositors who had their money in a Cyprus bank lost like 50% okay? I mean it's kind of like FTX. It's like FTX saying everything is fine FTX is fine and those people who trusted Sam Bankman-Fried gone. Okay?

Now what that would mean in practice by the way is to like limit your exposure to blue America. Um like minimum necessary US dollars, minimum necessary US bank account, minimum necessary US assets, assume that everything like you're like the Canadian truckers, right? Assume that anything can and will be seized that's sitting on a US establishment controlled ledger, including those it controls indirectly. You know, it's a it's a toss-up as to whether Bank of Japan will freeze assets for it how you know, it's it's kind of under the US thumb. It's got, you know, the US has 50,000 troops or whatever here.

Um, but but other countries like India won't do what the US says. It may do its own things, but it but won't do that. Uh, sorry. Go back and repeat the question because I know I digressed, but I think it was relevant. Uh, just whether there was any chance of a peaceful transition.

Ah, that's right. So, I I think if people the more people who get out sooner You know, Paul Krugman has this saying, "Fiat currency is backed by men with guns." Okay, you ever heard that one by Paul Krugman? Okay, it's clip. All right.

Right now, what the Fed has is I mean, what people think of the dollar as like a piece of paper. That's actually not the right visual. You should think of the dollar as a network. Okay, it is a network of billions of people around the world and the Fed is a system administrator. And it can hit a button or have one of its delegates hit a button, one of its central banks, one of its banks hit a button and it can freeze or seize or print.

It's like a video game and they've got root access and they can make all the numbers go up or they can make all the numbers go down on anything within that system that they control. If enough people get out of that system or they have at least an account on another network. They have an account on the rupee network, the Ethereum network, the Bitcoin network, even the yuan network or whatever, right? The El Salvador network, the you know, the Dubai network. If they have an account on another network and they have some degree of insulation, then when all their property is seized on the dollar network, well, they they aren't diluted to zero, right?

They can continue to some extent, right? And then what that means is that those folks who are diluted to zero, those are ones who have the maximum amount of conflict. And what I actually think happens is something similar, unfortunately, to what happened with the USSR where it just imploded at the end and had to pull back its troops from everywhere. I think the US is going to implode and due to this gigantic fiat crisis again. Remember that Morgan Stanley thing?

The commercial real estate crisis alone is worse than 2008. A lot of people said in 2008, you know, you don't know how close we came to the end of the world. Now we're going to maybe find out what the ultimate reality looks like, okay? Lots of people who go back to 2008 they're like, you know, we came really close to the end of the world, right? Actually, by the way, you know, one thing I will say, you know, cuz 2008 people are like, well, Balaji, what's the big deal?

You know, 2008 wasn't wasn't that big a deal and, you know, we lived. It'll just be the same thing as before, right? A lot of people will say that. But I'm going to show you just one more plot which gives you a sense of how 2008 might not have been cost-free, okay? And I'm not saying this is the conventional wisdom, but let's just say this is something to consider, okay?

Um can you guys see the screen there? Yeah. Okay. So here's a really really important graph. In 2008 this is What this is showing on this axis is uh the GDP of a US congressional district, okay?

And uh in 2008 is the uh the solid line outline, okay? So in 2008 the distribution of Democrat and Republican districts was roughly equal. As you can see like kind of the center of the Democrat distribution, the the solid line outline is roughly the same as the center of the Republican distribution, right? This uh this sort of solid line out, okay? But then by 2018 the the the dots are where the blue distribution has evolved to and you can see all of the richest districts are suddenly Democrat.

And the median of the Democrat distribution is way above the Republican distribution. So this is how if you guys if you're old enough to remember in the 2000s Republicans wore suits and ties, how did they in 10 years become the trucker hat wearing pearls of the Trump coalition. Well, 2008 2020 2016 was when the money was printed and when it was distributed and it went to the coast first, which were mostly blue. There's a lot of data on that and this is not a blockchain, so we can't track everything. But the Cantillon effect means the guy who gets the printed money first wins.

They get the purchasing power. By the time it gets to some poor schmuck in Nebraska or something, that dollar is already worth less. It's purchasing power is being run through, okay? And so, you know, look, I am I saying this is intentional? May- it's just a coincidence perhaps that Democrats became rich by 2018 and Republicans became poor, 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, okay?

So, it's like it's like an anesthetic. It's like a mosquito. It tranquilizes you and then it drains your blood, right? So, the Republicans suddenly became poor over exactly this period and this is a massive shift, by the way. This is trillions of dollars being The other thing is it's not just Republicans who may have paid for 2008.

The other group that may have paid for 2008 were the non-Americans, right? Cuz guess who else got hit by inflation? The Arab Spring. And that that's what caused the Arab Spring. The food guy, if you remember that guy set himself on fire because food prices were so high, okay?

And so, all these civil wars and revolutions broke out and you know, 2008 was the end of the world if you lived in Libya. They're still in civil war 10 years later. They got freedom exported to them with NATO air strikes and inflation. And um, you know, like basically the Arab Spring was the Arab Winter for them, unfortunately, right? You know, lots of countries were plunged in civil war and chaos.

So, the point is that inflation is not cost-free. It's just optimized to be invisible and the costs are imposed on those who are the least conscious of what is happening to them. And uh, and that's actually part of the point. But once if a lot of those people let's say those billions of people exit in whole or in part from the dollar network and they're in cryptocurrency or they're in foreign currency or they're in gold or commodities. And when I say that by the way, I don't mean like commodities trade on exchange.

I mean like gold in your hand. I mean like a barrel of oil outside on your doorstep, okay? You might not want that cuz it's toxic, right? That's why you go back to crypto or something like that. But those people who are in foreign cryptocurrencies, foreign currencies, commodities, foreign currencies being non-Fed controlled currencies, because they're less exposed to it, they are less exposed also to potentially what happens when the US government doesn't have any money left.

I think what happens is the troops get pulled back, the militarized police are then turned on the population, and then some very ugly things happen in the US. Scenes that we have seen, unfortunately, in Russia, in China, in Vietnam, in North Korea, in Cuba, in much of the world in the 20th century, you had very nasty scenes. If you're from Iran, if you're from actually arguably much of the world, if you're from Eastern Europe, right? Lots of countries went communist or socialist, they had asset seizures, they had nasty nasty nasty things happen when their governments ran out of money. This is what I think is possible.

Thanks a lot. We'll we'll do one last question and then we'll close off with another question on my end. Hello. Um I'm wondering if you could talk about the prospects of Bitcoin being banned and what would you do in that case? And also how would you buy gold custodially?

Yeah, so um I think actually what's going to happen is uh Bitcoin trifurcates the world into three kinds of states. Um Bitcoin atheist, Bitcoin monotheist, Bitcoin polytheist. Okay? So the Bitcoin atheist states will probably be blue America, the dollar states, and um probably the Chinese zone, and you know, Bitcoin in private hands may not be legal. Okay, it's like guns in private hands.

Okay, it's like the gold like you must give Bitcoin to the state if you have it. Okay, you're not supposed to hold Bitcoin personally. The state is supposed to have it. Bitcoin monotheist states will be like Bitcoin maximalist states and their only cryptocurrency will be Bitcoin. You know, you know, Bitcoin maximalists on Twitter.

And and I understand where they're coming from by the way. Like you know, the Star-Spangled Banner has that bit at the end, you know, and the flag was still there, right? Every single thing that Republicans, conservatives, and so on had has betrayed them from country music to the military, etc. But Bitcoin was still there, right? So, that is the one constant when everything else is variable and will acquire a spiritual level of significance for those people where the state is failed, the network is still there.

Okay? It's the inverse of what Nietzsche said in the late 1800s, you know, basically I I talked about history running in reverse. Late 1800s, Nietzsche said, "God is dead." And what happened? The The state rose in its place and the state also tried to kill the network.

It tried to kill capitalism, you know, the Soviet Union tried to kill capitalism. Now today, it's a reverse. Technology has restored God in the form of the AI God. Why? Because it's smarter, it's wiser, it's more all-knowing.

We're at the early stages, but every community will build its own AI which will be like unto a god because you'll go to it for guidance. You know, there's this book called uh Are You There God? It's Me, Margaret where this girl little girl writes letters to God for answers because it's wiser and more, you know, better knowing. That becomes a real thing again. You have something that is smarter and wiser and more knowledgeable that knows everything from your culture.

The Indian version will know the Upanishads, the Ramayana, the Mahabharat. It'll know all these things. It'll be able to give you, you know, for example, the Hindu way of doing things or the Dharmic way of doing things, right? Every culture will have its own god. We're also restoring the network and this time it's the state that is dead.

Okay, so the rise of AI and Bitcoin flank the state on either side. Point being, the Bitcoin monotheist states will basically worship Bitcoin, and it'll be it'll be lightning, it'll be ordinals, it'll be Bitcoin only, like you know, quote shitcoin scammers will be treated extremely harshly. You would not want to have any digital asset other than Bitcoin, like the one coin. And then finally, you'll have Bitcoin polytheist states, which are uh those states which are far enough outside the blast radius that they aren't radicalized as being either Bitcoin atheist or Bitcoin monotheist. If you're far enough outside, then you can afford to think, "Okay, Bitcoin and."

So, Bitcoin and Ethereum. So, these will be the financial centers of the world, like the UAE, like Singapore, potentially like El Salvador, um you know, potentially other countries that made good decisions. Like the small states, ignored states, the looked-over states of the 20th century that have good leadership could be Bitcoin polytheist states. But, they'll need some degree of prosperity back on prosperity to to allow this. And so, that's my answer to your question.

I don't think it's as simple as a Bitcoin ban. I also think, by the way, that the Chinese might be able to affect a Bitcoin ban, but I think the blues will find it hard to do so because it's like their bans on speech. They don't have enough political or economic support or enough IQ to execute on them. There's enough pushback from the grays, the tech tech people, and the reds. You know, I think of the tech libertarians as a future, and reds as conservatives as a past, and the blues as a present.

They're hanging on to the western present, and they're fighting the future and the past at the same time. I have to be political here because just everything is going to be political soon. Um they're also fighting the Asian past and the Asian future. So, the western present is against the western past, the western future, the Asian past, the Asian future. I don't think they can fight all those things at the same time.

I think they're going to try. I think it's going to be nasty. I think they're going to try to narrow the exits to Bitcoin. As they do so, by the way, as liquidity drops, less buying spikes the price higher. As you close the exits, people demand the exit more, okay?

And it's going to be very hard for them to ban every single crypto exchange in the world, okay? It's going to be hard for them to do that cuz what's going to happen is some states will rise and they will say, "Okay, we're going to open the digital gold window." We'll have something like bitcoin.florida.gov, bitcoin.

texas.gov. Reopen the gold window that Nixon closed in 1971. Other states can do it. bitcoin.

elsalvador.gov where you can buy and sell Bitcoin. It's just Coinbase 2013. It's simple exchange functionality, the simplest order book. Buy and sell Bitcoin for the local fiat currency.

But that means the right to buy, sell, send, and receive Bitcoin shall not be infringed. That's like the founding principle of I think the Bitcoin states. If you have that, you have everything. And if you don't, you have nothing. Um you don't have digital freedom.

So freedom is basically can you buy, sell, send, or receive Bitcoin? And if so, you can probably do other things. And if you can't, well, you're probably in digital lockdown. So I don't think it's as simple as just a Bitcoin ban or what have you. I think it's going to be quite a struggle.

All right, we're on to our last question for today. Hey, um so to give you some context, I study the market cap of people bypassing capital controls. And I'd like to hear your thoughts on two different scenarios and which one is more prevalent. So scenario one is when someone creates enough wealth in their life, they start looking at four different passports. And they'll go to countries like Dubai or whatever and then swap passports and then dip out of Dubai.

And then they're effectively a different citizen for for a different country. Right? So what's the market cap of that? And then alternatively, scenario two is that when the when you're looking at the forex markets and all these currencies are flooding towards the dollar right now. When you're looking when you're comparing to like USD to CNY, USD to EUR, you know, blah blah blah.

JPY included, right? It's actually flooding towards the dollar, right? And during those during that scenario, um there's a a phrase I'm calling a financial colonialization, meaning that any American or any dollar holder that uh you know, is holding the dollar at uh a better exchange rate compared to their, you know, other other countries, you can effectively buy like, you know, Japanese real estate for like 30% off and all that kind of stuff. Right? And you know, the US is one of the few countries that actually charge um global income tax, right?

So, it it actually helps the US. So, you know, I'm I'm trying to figure out like what's the market difference between the two. Well, okay. So, on your second point, um I agree that right now people are running a 2008 playbook, where people within the US and outside the US are trying to flee towards the big banks, the too big to fail, and so on and so forth. Because they haven't fully gamed it out and said, "Oh, actually the USD is no longer too big to fail in 2023."

That is the new thing. A human can die before their successor lives, but a system can only die when its successor is alive. The new new system has to be up before the old system can die. And there's at least two competing currencies, both BTC and RMB, right? BTC is like the cloud competitor, and RMB is like the land competitor.

RMB and also the Indian rupee and so on, they're backed by natural resources, manufacturing, commodities, gold, etc. BTC and then ETH and so on are backed by compute, IQ, agility. And both those are different kinds of contenders and competitors for the USD. And so, in 2023 as opposed to 2008, USD is no longer too big to fail. So, while I do agree that dollars are flowing into the big banks as they were in 2008, I don't think that's the end of the act.

I think what's going to happen is also it's it's been turned agile. That that money, it's like a it's like, you know, you see a flock of pigeons and you you know, you you somebody throws bread at them, they all take off at once. All the money has been turned digital and agile and like hundreds of billions of dollars can move in a day. And so right now it's at big blanks, but it's very flighty and it could move here and it could move there. And when it does, they're going to try to impose capital controls potentially depending on where it moves, but then we start to get into end game.

Um to your other point, like basically I think there's multiple levels of exit, okay? Um and everybody is going to choose a different level of exit based on their own estimation of conditions and their own life. Some people will just say, "Okay, you're such an idiot. Obviously you you know, people predict 15 of the last three crises. We've gotten through 2008.

Everything's going to be the same. You're just you know, histrionic. You're a Blah, blah, blah." Okay, fine. That's that's basically the blue American dollar nationalist.

Their mental model is the US government has infinite hit points. They believe all the stuff in textbooks about the risk-free rate of return, that the treasuries are the safest asset. They probably also believe that the CDC can control disease, that the FDA can improve tests, that the US military was telling the truth about Iraq, that the banks were telling the truth about the mortgages and so on and so forth. They believe the media. This is that kind of person, okay?

Leaving that kind of person aside, doesn't even agree that there's a problem. Folks will pick different levels of exit as a solution. Some folks will just buy like, okay, they'll buy some cryptocurrency and they'll sit in a blue state. That's they're just doing financial insurance. Others will do that and they'll also move to a red state if they're in the US.

Others will do that and they'll move to a foreign state. Okay? Um which is farther away from blue America both physically, socially, and financially. Uh and um and so and then states themselves are now pulling away from blue America. So that's a difference to your thing is there there's obviously individual level adaptations, there's company level adaptations, and then there's country level adaptations where Macron or the European Council or Brazil or Malaysia are all pulling away from blue America now.

And the farther they can get away before the blast, probably the better off they are. And so so that's that's collective exit. That's actually the big one of the big contributions, if there's a contribution, I you know, at least my attempted contribution with the network state, is to popularize the concept not just of the sovereign individual, which is important, but the sovereign collective. Because no man is an island, and you know, if you look at Steve Jobs's email from a while back, I mean, Steve Jobs was one of the most exceptional human beings on the planet, but he was like, "Look, I don't, you know, uh I don't make my own antibiotics. I don't, you know, like uh brew my own beer.

Um the water coming out of the tap, it wasn't due to me. I depend upon this network of humans. My species is amazing, right?" Now, you might need fewer humans thanks AI and automation and robotics and so on. I will grant that.

And I think a smaller group it's easier and more nimble. But you do need some other humans to do things. Humans are social animals. So that doctrine of the sovereign collective is not simply just leaving the country, but it's finding a new collective. It's not simply unbundling and decentralizing, it's recentralizing and finding a community.

And then you're stronger together as opposed to just one solitary unsympathetic individual. Awesome. Well, thank you, Balaji, for taking the time and for the video and answering all of our questions and going over more than what we asked for in terms of time. Great. Amazing.

And if you guys have any more questions, you can DM me twitter.com/atbalajis. I'll have an update on the bet also soon. I think it'll be satisfying for everybody. Um and uh of course, you know, the reason I did that was to draw attention to this crisis.

Nailing the timing is hard. Michael Burry thought the market would collapse in Q2 2007, the guy in the Big Short. Only collapsed in September 2008. Timing is hard. I think it's maybe 10% probably things unwind in months.

I think it's 70% years. 20% decades or more, but 10% is a lot. US sovereign debt, you know, default rates are, you know, probability the estimate by the market is already at all-time high. You can go and look at that yourself. So, um so I'm not trying to be alarmist.

I'm not trying to be, you know, crazy or anything. You can discount everything I'm saying. Go and check everything I've said. Figure it out for yourself. Um but uh but this is my opinion and uh hopefully all of you guys can start thinking about building that new financial system faster and and closer to immediate user experience things and with states and get that done sooner rather than later.

Thanks, guys. Thank you.