Emergency Episode: Why This Financial Crisis Is Worse Than 2008 | Balaji Srinivasan Pt 2 (Fan Fav)

Summary

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Podcast Summary

Impact Theory with Tom Bilyeu

Emergency Episode: Why This Financial Crisis Is Worse Than 2008 | Balaji Srinivasan Pt 2

Podcast Date: January 3, 2026
Guest: Balaji Srinivasan
Host: Tom Bilyeu

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Overview of the Episode

This episode is part two of a deep-diving conversation with Balaji Srinivasan, focusing on the ongoing and future economic crises, global geopolitical shifts, the cultural and institutional decline of the US, and the rise of China as a superpower. Balaji compares today’s financial instability to the 2008 crisis, argues that Americans are underestimating the risk of systemic collapse, and explains why history might be running in reverse. The episode explores the fraying US political and social fabric, “de-dollarization,” China’s ascent, the fragility of fiat currency systems, and the future of sovereignty and digital assets.

“We're exploring the growing political divide, China's influence, and the far-reaching impact of the potential economic instability coming. He thinks it's going to be worse than 2008. It's bananas.” — Tom Bilyeu [01:00]

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Key Discussion Points & Insights

1. Is the US Debt-to-GDP Crisis Overblown?

• Tom references Chamath Palihapitiya’s position that high US debt-to-GDP ratio is not a concern, but Balaji disagrees:
  • Most Americans have not seen true economic collapse, but it’s very common globally. Only the US, Canada, and Australia avoided massive economic apocalypses in the 20th century [02:45–05:00].
  • “Economic apocalypse is actually fairly common... Instead, the one thing that we are aware of is the potential for genocide on racial terms... But actually most... conflict in the 20th century was... on the basis of class.” — Balaji [04:00].

2. Generational Amnesia and the Decline of American Dynamism

• Balaji argues that Americans have inherited a system they did not have to build or defend, and that leads to complacency:
  • “There's a huge difference between founding and inheriting, not just for an individual, but at a country level.” — Balaji [08:10].
• The “resource curse” and entitlement—US feels immune to decline due to past dominance, which is dangerous.

3. China’s Rise and America’s Response: Denial and Imitation

• Balaji: The US responded to Sputnik by rising to the challenge and investing in math and science; the current US reaction to China is denial or rationalization [10:45–12:32].
  • “The response to Soviets couldn't be more different than the response to China, which is a combination of denial and actually stealth imitation.” — Balaji [10:40].
  • Steel production as emblematic: In the 1970s, US made 10x China’s steel; today, the roles are reversed [11:45–12:20].
• Tom laments the loss of a competitive spirit in America. “I want to be around people that want to win... That spirit is just going away.” — Tom [15:30–16:13].

4. “Cope” Narratives When Discussing China

• American excuses: China can only build because it’s a dictatorship, but Balaji refutes that, pointing out the US in WWII built bombers at unprecedented rates while being a democracy [16:13–18:55].
  • “If the argument is they're a communist dictatorship, that's why they're strong... They were even more communist then. If you're actually arguing that gives them strength. It doesn’t.” — Balaji [17:55].

5. Tribal Polarization and the Fracturing of America

• America is better understood as a fractured federation of tribes—Democrats, Republicans, “Bitcoin-ers”, etc. [27:08–28:50].
  • “It’s not one country, it’s two parties... It’s like mitosis, it’s like a cell coming apart.” — Balaji [27:50].
• Data: Congressional bipartisanship has broken down over 70 years; social networks show political tribes don’t mix or even marry [28:00–28:50].
• The shift from ideological alignment to pure tribalism is evidenced by rapid policy flip-flops (e.g., Covid response) [29:00–31:33].

6. The Dollar, De-Dollarization, and the Next Economic Shock

• The US dollar is the last unifying symbol; the only thing most Americans can agree on is valuing the dollar [32:02–32:45].
• America risks an EU-like fragmentation if the currency breaks down.
  • “If there's like a serious currency crisis... the dollar is the last tattered piece of paper that’s holding the thing together.” — Balaji [32:45].
• China’s “diplomatic muscle”: In March (2023), China negotiated peace between Saudi and Iran, accelerated de-dollarization in global trade, and won over Middle Eastern and southeast Asian countries [33:50–36:40].

7. De-dollarization is Decentralization, Not Just “Yuanization”

• Tom asks why the dollar remains the world’s “store of value”. Balaji argues global assets are diversifying—not only to yuan, but also to gold, crypto, and other alternatives [40:16–46:36].
  • “De-dollarization is decentralization... a few hundred million people pick an option, that's actually enough to do quite a lot with it.” — Balaji [40:29].
  • Foreign holdings of US Treasuries peaked in 2013, are down from 34% to 24%; gold holdings are up (but gold price lags) [41:06–41:58].
  • Difference between “pre-headline” (anticipatory) and “post-headline” (“NPC”) thinkers (explains why many miss trends) [42:39–44:15].

8. Wall Street, Financial “Camouflage” & The Illusion of Stability

• The financial industry’s instruments become more complex and confusing on purpose (“evolved camouflage”) [54:16–63:25].
  • “The trillion dollar coin is less clever than their usual kinds of illusions. When they do quantitative easing... it is set up to be hard to understand.” — Balaji [55:50].
• Tom’s “category error”: People are lulled by consistent, managed stability (e.g., 2008 was milder than 1929), but this masks growing risk [71:02–71:25].
• Fiat offers long-term decline in value but short-term stability; crypto is volatile short-term but appreciates long-term [75:07–75:44].

9. The Deep Branch Point: Asset Seizure and Digital Sovereignty

• Balaji’s thesis: G7 countries are running out of money and will attempt asset seizure—either via inflation or outright taking [78:34–79:22].
  • “The real branch point is fundamentally will asset seizure be possible in the digital world? ...One of the most important problems ... is the fact that Apple has software update and Google can get into your Google Drive... if ordered by the state ...they could scan your hard drive for private keys and pull your digital assets. That is ...the most important problem coming up.” — Balaji [79:22–80:41].
• Depending on whether digital assets can be seized, we face totalitarian centralization (CBDCs) or the rise of “network states” where groups can crowdfund territory and form new sovereign entities.

10. History Running in Reverse & The Unbundling of the Western World

• Many trends echo the unwinding of 20th-century centralization:
  • 1950 peak “centralization” (nation-states, two superpowers, mass media), now fracturing into smaller, more tribal, digitally-networked groups [94:48–98:12].
  • The only exception: Asia is centralizing (China, India on the ascendancy).
  • “The future is a decentralized west and a centralized east.” — Balaji [96:31].
• Analogy: The Blockbuster video store as a metaphor for the nation-state—dominant due to technological era, but outmoded by newer innovations (Internet, crypto, etc.) [107:20–108:12].

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Notable Quotes & Memorable Moments

On American Exceptionalism and Decline

• “There's a huge difference between founding and inheriting, not just for an individual, but at a country level.” — Balaji [08:10]
• “The memory of what it took to earn it has fallen off.” — Balaji [07:00]

On China’s Ascent

• “These guys are building things now. Are they building too many things? Maybe. But… when you look at China and you're like, ah, they're going to collapse. Like, you know, we don't need to respond... I'm like, you're going to lose.” — Tom [13:00]
• “If the argument is they're a communist dictatorship, that's why they're strong... They were even more communist then. If you're actually arguing that gives them strength. It doesn’t.” — Balaji [17:55]

On Tribalism

• “It’s not one country, it’s two parties... It’s like mitosis, it’s like a cell coming apart.” — Balaji [27:50]
• “That’s like, at least like, two or three or four flips, depending on how you count. And when you have flips like that, it’s tribal, not ideological.” — Balaji [30:00]

On Financial Deceit and Camouflage

• “The financial system is set up to deceive you as to what it’s actually doing.” — Balaji [66:25]
• “If it’s obvious how bank A is screwing bank B, then bank B spots it. If, however, it's camouflaged in such a way, then—‘We got you!’ Right.” — Balaji [67:15]

On the Dollar and Coming Crisis

• “The dollar is the last tattered piece of paper that's holding the thing together.” — Balaji [32:45]
• “De-dollarization is decentralization.” — Balaji [40:21]
• “G7 countries are running out of money and will attempt asset seizure in the future, whether through inflation or actual seizure.” — Balaji [78:51]

On the Future of Sovereignty

• “The branch point is fundamentally will asset seizure be possible in the digital world?... One of the most important problems that’s coming up in the next X years.” — Balaji [79:22]

  [See full sections and timestamps above for in-context remarks.]

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Key Timestamps for Important Segments

• US Debt-to-GDP and the Risks of Complacency: [02:45–08:10]
• China’s Industrial Surge & US Complacency: [10:45–14:48]
• American Tribalism & Partisan Fracture: [27:08–32:45]
• Dollar as US Unifier & Currency Crisis Fallout: [32:45–38:15]
• De-Dollarization: Graphs and Global Shifts: [40:16–46:36]
• Financial Camouflage (Trillion Dollar Coin, Premium Bonds): [48:06–66:25]
• Asset Seizure Scenarios, Crypto, and the Network State: [78:34–85:24]
• History Running in Reverse, Decentralization vs Centralization: [94:38–108:12]

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Tone and Language

Throughout the episode, both Tom and Balaji speak with urgency, skepticism, and occasionally, dark humor. Balaji provides dense, analytical insight, often referencing historical and economic data. Tom probes with practical and moral concerns, sometimes expressing incredulity or anxiety at the conclusions.

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For Listeners: Why This Episode Matters

If you want to grasp why the present financial crisis may dwarf 2008, understand the real stakes of “de-dollarization," and see the world through the eyes of a leading technological thinker, this dialogue with Balaji is essential. The second part of the series expands the global context, exposes the fault lines in American institutions, and sketches potential outcomes for the coming decade—ranging from further decline to revolutionary new forms of digital sovereignty.

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Transcript

[Balaji Srinivasan]

Reggie, I just sold my car online.

[Tom Bilyeu]

Let's go, Grandpa.

[Balaji Srinivasan]

Wait, you did?

[Tom Bilyeu]

Yep, on Carvana.

[Balaji Srinivasan]

Just put in the license plate, answered a few questions, got an offer in minutes. Easier than setting up that new digital picture frame. You don't say. Yeah, they're even picking it up tomorrow. Talk about fast.

[Tom Bilyeu]

Wow.

[Balaji Srinivasan]

Way to go. So, about that picture frame. Ah, forget about it. Until Carvana makes one, I'm not interested. Car selling made easy on Carvana. Pickup fees may apply.

[Tom Bilyeu]

Well, the holidays have come and gone once again. But if you've forgotten to get that special someone in your life a gift. Well, Mint Mobile is extending their holiday offer of half off unlimited wireless. So here's the idea. You get it now, you call it an early present for next year. What do you have to lose? Give it a [e-mail] Switch limited time.

[Balaji Srinivasan]

50% off regular price for new customers. Upfront payment required $45 for three months, $90 for six month or $180 for a 12 month plan. Taxes and fees. Extra speeds may slow after 50 gigabytes per month when network is busy. See terms.

[Tom Bilyeu]

What is up guys? We are continuing with part two of this incredible three part episode with Balaji Srinivasan. If you don't know him, this guy is guaranteed to stretch the limits of your thinking. He is an incredible thinker, an incredible entrepreneur and one of the brightest minds talking in economics today. And in this episode we're exploring the growing political divide, China's influence and the far reaching impact of the potential economic instability coming. He thinks it's going to be worse in 2008. It's bananas. One of the things that we tackle is are we witnessing the emergence of a new global superpower while the American empire fails or is this just the tip of an even far larger iceberg? Stay tuned for more and make sure you're subscribed to Impact Theory on Amazon Music so you do not miss the upcoming finale of this mind blowing episode with Balaji Srinivasan. Part three of this Bad Boy is coming up, so go subscribe right now.

[Balaji Srinivasan]

Tom.

[Tom Bilyeu]

I'm Tom Bilyeu and welcome to Impact Theory. Before we move on, I think this is very important. So Chamath. Hollyhapatiya. Polyhapatiya. Sorry. So I don't want to misrepresent his views, but he is, I think he's incredibly bright and he has said many times. And Chamath, forgive me if I'm getting your your idea wrong here, but basically that the debt to GDP ratio is a big Nothing burger and everybody gets their panties in a twist. Does that number gets bigger? And you know, we've got multiples of GDP and debt and he's like, nothing's ever going to happen. It doesn't matter. There is no upper bound. What do you say to that? Is, is there a breaking point or can we actually just keep printing money basically forever?

[Balaji Srinivasan]

Well, you know, Chath is a, you know, he's a colleague and co investor and I've been on all in a bit and I think we have a cordial relationship. Chant has also said, Put 1% of your assets in Bitcoin just in case because if everything else goes to zero, then you know what, like they can't dilute that. So you know, if you, if you asked him, I don't know where he is at numerically on that, but he probably, I don't know if he'd say it. There's 100% probability of no devaluation. He's a sophisticated investor. He probably hedges. So that's, that's the first counter argument. Many people, I mean it's, it's a point about not seeing something in one's life. I mean, let me make the point in somewhat different way. Most of the 20th century, most people in the 20th century saw an economic apocalypse of some kind. It was communism in Russia, in Eastern Europe, in Vietnam, in Korea, in Cuba. Right. It was Islamic fundamentalism in, for example, Iran. That was also asset seizures happened there. That's actually why a lot of Persian people made their way to la. A lot of the entrepreneurial class, their assets were seized in that revolution. There was socialism in India, there was currency devaluations in Latin America, all the kleptocracies. And you know, like Argentina was once a rich country and it became poor in part because of these kind of currency crises. And certainly there, you know, even the UK had huge problems after World War II to pay for all of that. And so the, you know, I think there are three countries. Dalio talked about this. There's only three countries that compounded through the 20th century without an economic apocalypse. And those were the US, Canada and Australia. And so you have this interesting combination of three facts. First, economic apocalypse is actually fairly common. Second, economic apocalypse is uncommon for Americans. And third, economic apocalypse is uncommon in American media. And instead the one thing that we are aware of is the potential for genocide on racial terms. That is definitely a threat. That's something you should be aware of. But actually most of the conflict in the 20th century was not on the basis of just race. It was on the basis of class.

[Tom Bilyeu]

Do you think Americans have to worry about that?

[Balaji Srinivasan]

I do think so, yes. And the reason I think so is if you're not like immunized against something. I mean, in many ways I think this century is seeing sort of a flipping, okay, where or flipping where those countries that were on the capitalist right in 1991 and the communist left in 1991 have essentially shifted sides where now that are on the cultural left and cultural right. And one of the consequences is all the countries that had suffered through socialism, communism and so on in the 20th century, even if they still call themselves communist like Vietnam or China, they're done with that in a sense. Like, you know, they're not. I mean there's, there's bad things that, you know, the CCP is doing, but they aren't like fully abolishing capitalism and going back to Maoism that would make them too poor.

[Tom Bilyeu]

What do you think they learned that made them flip that leaf?

[Balaji Srinivasan]

Generates power. I mean capitalism, they like to be really blunt about it. I mean basically you have an economic machine and you can, you know, it turns out letting people self organize generates more wealth and power than not. Right. That's if you're just totally cynical about it. Right. And of course it is. It also generates more contentment among the population. Eventually you can get from a position of 20 totally enlightened self interest to okay, it's more stable than the alternative. The people are, you know, have, have a good standard living. They're not going to protest. You can run the government or whatever. Right. The by contrast, if the other side is, if you have been born rich, have you heard that, you know, saying like shirt sleeves to shirt sleeves in three generations.

[Tom Bilyeu]

Love it. Yeah.

[Balaji Srinivasan]

Used to be an old American saying, right. So the current generation in the US has been born to wealth, right. They're born. A lot of people who've come to majority have essentially inherited this giant superpower with this scaled economic system and so on. And they didn't have to work for it and fight for it, fight in wars. They didn't have to earn it. And so the memory of what it took to earn it has fallen off. So it's the opposite of those, you know, who grew up under socialism, grew up under communism. You're not, you know, like in India for example, which is actually rising and doing quite well on balance nowadays, nobody is like romantic. About 15 years ago it was much worse. You know, life is getting better there, infrastructure is improving, technology is like a good thing. Capitalism is a good thing. And in general, you know, not without its ups and downs, but things are generally up and to the right. And by contrast in, you know, the West, I think they've forgotten what's got them there. And it's a combination of, you know, oh, we can spend without having to produce. You know, you've heard the concept of the resource curse. That is.

[Tom Bilyeu]

Yes, very much so.

[Balaji Srinivasan]

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

[Tom Bilyeu]

They'Re on the way out. It's done.

[Balaji Srinivasan]

Yeah, exactly. Their demographics are done. They have terrible geography, they don't have a blue water navy, they can't feed themselves and so and so forth just to kind of go through these points because people will raise them a lot first on. Should I talk about that for a second?

[Tom Bilyeu]

Yeah, please. This, this to me gets into why we're in trouble.

[Balaji Srinivasan]

Yeah. So, so first just looking at the graphs, you know, maybe put the graph of steel production. Okay. And then put the graph. It's insane, right? So you see this graph and what you can see is anybody who's making an analogy to the past saying, oh, you know, it's just like the 1970s and US was in a malaise. But you know, we pulled it out and so the US was making 10x the amount of steel of China in, in, in that period. And now it's the other way around.

[Tom Bilyeu]

China, why steel? Biology. Why, why do you focus on that?

[Balaji Srinivasan]

Well, it's just, I mean you can look at tons of other stuff. You can look at, you look at basically every raw material or not every raw material, I should say every manufactured thing of variety of different Graphs look like this.

[Tom Bilyeu]

And the reason I think steel is interesting, exactly, it's emblematic. These guys are playing to win. And look, I'm in California. If I had to do the last three years over again, I probably would not be in California. There is. There's just a growing sense of, like, that trying to win is bad and that you shouldn't want to be competitive. You should want everybody to win. And I'm like, no, I'm here to win a championship. I want to be the best. I want to play with people that want to be the best. And so when you look at China and you're like, ah, they're going to collapse. Like, you know, we don't need to respond. Like, we responded to Sputnik. I'm like, you're going to lose. Like, you've got to be in this game to win now. You do not need to love, to crush your enemy and hear the lamentations of their women, you know, as they're driven before you. That's not my vibe, but my vibe is very much like, the reason that steel is interesting is these guys are building things now. Are they building too many things? Are they building things they're going to, like, knock down? Maybe. But one thing I've heard you talk about, which I think is. Is really insightful, is that the. That thing that, man, if you're of my age, when you hear that idea of, oh, Pearl Harbor, I think we awoke a sleeping giant. And, like, you know, this is like a fatal mistake. And the US Comes and just like, manufactures and we do this unbelievable stuff. We're able to build this Navy and army. Like, unbelievable. We end up doing what we do in World War II. Absolutely incredible. Amazing, amazing. But now, like, if we had that same moment now, I don't think we'd be able to manufacture our way out of this. We've outsourced all of that manufacturing. And so now we're in this different period where culturally, people don't want to be dominant, they don't want to be aggressive. Like, that scene is like bad mojo and, oh, it's toxic masculinity or whatever. And I'm just like, oh, my God, like, I need to be around people that, that want to go hard. I want to be around people that want to win. Like, I want. I want to be around people. And look, this is going to be a little naive, so please look past this is. I'm just trying to explain, like, my spirit of competition. I don't look at China and think, oh, I have to beat them, and they're bad. I look at China and I go, all right, China, I see you. I see what you're building. I see that you can build a train station or whatever it was. And in like a night. Not, not joking, by the way.

[Balaji Srinivasan]

I don't.

[Tom Bilyeu]

It might have been 48 hours, but it was so. Yes, it was so fast. I was like, this is insane. And in the us, California especially, like, you can't get a bathroom stall put in.

[Balaji Srinivasan]

You've.

[Tom Bilyeu]

You've shown this, like, cutting the toilet paper ribbon for bathroom stalls. Like, guys, what is happening? And so getting back that energy of, like, I want to go against the best. I want China to be as strong as possible. As somebody who has read Mao the Untold Story, I am so happy for them that they have moved away from that and that they're coming out. I want a formidable opponent, but I want to be sharpened by that opponent. I want to get better because they're trying to outcompete me. And so I want to out compete. Like, I want to rise and do better. And look, I don't want to go to war. Trust me when I say I don't want to see them impoverished. That's not how I envision this. But when, when I was a kid and it was like US versus Russia, and it was like they were doing cool stuff and we were trying to do cool stuff, it was like, okay, that felt good. Like, it gave me a sense of pride in my team. It gave me a reason to want to get in there and do well. And because of the way that I'm wired, I didn't want to crush my opponents. I didn't want to see bad things happen to them. But I did want to win. And, like, that spirit is just going away. I already know that. The comments now to this section of the video, people are going to be like, oh, this guy. But I'm telling you, man, you need that spirit.

[Balaji Srinivasan]

So there's a few things which I think of as cope whenever you mention China that are worth addressing, right? One of them immediately with people will come with a psychological defense, will be like, oh, China can only do that because they're a communist dictatorship and we're a free country. So that's why it's messy and that's why we're slow at building and so on and so forth. Okay? Except, I mean, you know, if you believe America was a democracy in the 1940s, it could build a bomber in, you know, like a day, right? Actually, no. Here's the Stats, what is it? B2 bomber, B24 bomber. The source, Ken Burns, says 60 Minutes to build a P24 bomber. Okay. Which is crazy, right? And that is, of course, that's the average time, right. In terms of, you know, how many were being built per day. The B24 Liberator long range bomber. One came off the line every 63 minutes. Okay. Like now, today, it takes, you know, so World War II, America could make a B24 bomber in 60 minutes. 2022. America needs 20 years to reopen a bathroom, okay. In San Francisco. And the thing about this is there's actually two different demographics because one demographic is the one you just mentioned which says that they don't want to win. They want like all these environmental impact reports or what have you. But their demographic is one who's like, okay, yeah, we need to do industrial policy. But there's sort of. It's like LARPing, right? Because they are trying to do it with printing and spending. They're like, wow, spending on factories is up into the right. But you know what? Industrial policy is like venture capital. And simply spending the money doesn't mean you'll get the returns. It has to be done in a capital efficient fashion. And I'm not seeing that. Right. I'm just seeing money thrown around without constraint and without accountability and without a CEO. And so I'm not, I'm very bearish on essentially industrial policy right now. Okay. It's like saying you're going to do venture capital. You have to. There's a difference. You're doing it. Well, coming back up a little bit. Point is, in. In if. If the US was a democracy in the 1940s and China was communist in the 1970s, it was much more communist and genocidal then. And so if the argument is, oh, they're a communist dictatorship, that's why they could do it. Well, why weren't they? They were even more communist then. If you're, if you're actually arguing that that gives them strength. It doesn't. Because they were weaker 50 years ago. Right. And the U.S. was stronger. And you'll argue it was still a democracy. Right. So. So that actually blows up, in my view, that kind of cope style argument that, oh, you know, it's because they're, you know, evil. That that's why they're strong. They were actually much more evil, arguably 50 years ago when they were killing millions of people during the Great Leap Forward and Cultural Revolution.

[Tom Bilyeu]

Yeah. If anybody's arguing against that, I think that's madness.

[Balaji Srinivasan]

Yeah, so, so I'm not saying they're good, like in the sense of I don't like the social credit system and you know, the, the, the surveillance, you know, state they've built and so on. There's many legitimate critiques, but they're not like, they're not as murderous as under MAU. Right. There's actually an improvement.

[Tom Bilyeu]

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[Balaji Srinivasan]

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[Tom Bilyeu]

The Home Depot dream baths built here. This is pro linebacker TJ Watt. And I'm back with YPB by Abercrombie for another activewear drop. My second co design collection has new shorts and tanks that keep up with all my in season workouts. And their new Restore collection is a game changer off the field too, because even pro athletes like me need rest days. Shop YPB by Abercrombie in the app, online and in stores because your personal best is greater than anything, Seemingly by a country mile. But if everybody has a North Star, which is human Flourishing. I will say that yes, I don't think humans will flourish as well even under the current regime. I just think that that social credit scores and things, it just plays out in a way that breaks people's spirit. I that part of what allows for human flourishing is freedom. But I am not deaf to Ray Dalio's take, which is, look, they are a different society, they have different values. And so once you realize that the people could rise up at any point and they don't. So there is something going on there. It's not bad enough for them to drive them to revolt now maybe it would be if the US suddenly we woke up and we were like that there might be a lot more pushback. So anyway, I can simultaneously hold multiple ideas in my head. I would not want to live there. Does not seem like the thing that's going to lead to maximal human flourishing. But I agree with you very much. Having studied a limited amount, but having done at least some studying of Chinese history, it's like, whoa, it's a lot better than it was back in the 70s, 60s, 50s, 40s, just way, way, way better.

[Balaji Srinivasan]

Yeah. So one thing also, by the way, and this is controversial, but I'm just going to bring up these two articles so that people can at least see them. The thing that it is true that China has some of charge that China is being very. Either it's genocidal or it's cracking down or it's concentration camps or something on, on Uyghurs in western China. That'd be the counter argument. The thing is that the US Was bombing, you know, Chinese Uyghur militants and you know, once jailed them and now defends them. You can see these articles from Foreign policy. So here's NBC News 2018 U. S targets Chinese Uyghur militants as well as Taliban fighters in Afghanistan. US Once jailed Uyghurs now defends them at UN And Foreign Policy. So the thing is that at one point the US And China were both thinking of what's going on there as quote, counterterrorism. And there's a woman named Sheena Greitens that has written about this, right? And then it's kind of totally switched sides, right? And you know, this is not to defend anything that's going on there because I'm sure it's quite brutal. But it's like Sheena Gran on understanding China's policies in Xinjiang. This is in, you know, the belforcenter.org okay. And essentially like she, she's saying that China is talking about that as, quote, war on terror, very similar to how the US Justified its interventions in the Middle East. The reason I say this is it's like, okay, that's useful to know because it is. It's just not, you know, it's just not talked about. And, you know, one thing I find is, you know, the. The. All the. The negativity towards Russia and China is there's something merited there, no doubt. But it's also something which some people think it's like, oh, being super nationalistic and being super jingoistic and having a big war is just what the country needs to. America needs to get back together. You know, a big war that'll bring us back together. A common enemy. You know, I've actually seen people make this point. Have you heard that kind of thing before?

[Tom Bilyeu]

Of course.

[Balaji Srinivasan]

Right. So the thing about that is that's not necessarily true, because if there's a big war, I mean, if you think about COVID or 9 11, like the war on terror or Covid, that didn't bring people together, that just, you know, immediately got politicized and, you know, if there was an alien invasion, one side would. Would side with the aliens, almost certainly. Right. Like, that's just the dynamics of how polarized it is. And I think, you know, even though, quote, China is a bipartisan issue now, it's questionable as to how long that lasts. We'll see. Um, and it's a bad thing, by the way. It's like, you can't build America by hating China. You need to, like, love America or love other Americans. And you see my graph on, like, it's not one country, it's two parties.

[Tom Bilyeu]

Yes. Dude, this is one of the most troubling things you say. And I'm saying that in the context of. I know you're saying that we are potentially facing financial Armageddon, but this. So going back to my rogue wave interpretation of your thing, and I should explain that to people. So rogue wave happens when you have a bunch of big, but not destructive waves. They come together at once, and somehow their amplitudes magnify and it will create this rogue wave that can topple an oil tanker. And that feels like when you look at the collapse of an empire, it usually. They do not die from without. They suicide from within. And so you need this high degree of tension inside the country so that you can't get everybody on the same page, that everybody's just. There's so much infighting. So, yeah, walk us through, because this really freaks me out that we're we no longer make sense to think of us as Americans. Instead we should think of us how?

[Balaji Srinivasan]

As Democrat and Republican or even better, as one's own tribe. You know, some people will say Republican or Texan or Christian or Bitcoin or something like that. And first is just a level set because, you know, like it's useful to quantify something. Right. So if you look at this series of graphs, right, it's not one country, it's two parties. So basically this is Congress and an edge between two nodes is whether they voted together in 1951. There's lots of bipartisan stuff happening in Congress. In 2011 it was just totally a bipartite graph.

[Tom Bilyeu]

Do we have.

[Balaji Srinivasan]

That's a long term. Oh, even more than 18 or 22. This was 12 years ago. How partisan it had gotten at the leadership level. And it's even more aggressive than that. Right. So this is a 70 year trend, right. Where you can just see it gradually getting more. It's like mitosis. It's like a cell coming apart. Right.

[Tom Bilyeu]

For 70 years, that's exactly what it looks like. That's crazy.

[Balaji Srinivasan]

And then it's visible at the individual level in a totally different kind of data set. So the previous one was like voting. This is social networks and this is, and the previous one was leadership. This is the masses. This is from 2017. It's showing people friending each other, following each other on social networks. And, and red follows red and blue follows blue. And this was six years ago. Okay. And it's gotten even more disjoint since then. Now blue has their own on Macedon and red is on, you know, gab or something. And, and so it's gotten even more disjoint in their own, you know, rooms. Right. This study says that it's not just that Democrats, Republicans aren't friends with each other. Democrats and Republicans don't marry each other. 96% of Democrats are not married to Republicans. So ideology becomes biology in one generation. Right?

[Tom Bilyeu]

Yeah. Talk to me about the. Yeah, the Sunnis and Shiites. This is like hearing us referred to in that way was very eye opening for me.

[Balaji Srinivasan]

Yeah. If you ever read the New York Times about a foreign country, it'll be like in the arid steps of so and so. Tribes have taught each other for millennia. You know, they'll kind of like, they'll have a gorillas in the mist kind of thing. Right. But the level of conflict in the west now is, is tribal. It's Sunni, Shiite, it's Hudo, Tutsi Once you kind of start applying that filter, it's only partially ideological. And one way of seeing that is during COVID Do you remember, like, there were, like, four flips, for example, at the beginning, Republicans were worried about COVID and Democrats said it was racist to talk about the China virus. This is from, like, roughly January to March. Okay. Once Trump started acknowledging it and even saying something like, oh, you know, the. The virus is we should shut down testing or something like that. Like, you know, basically trying to downplay it. At the time, Democrats completely flipped, and now they were saying it was a huge deal, and they flipped to lockdowns, and Republicans flick flipped to libertarian. And then Trump's vaccine. Trump pushed, you know, Operation Warp Speed and so on through and. And got the government out of the way for vaccine development. And if you remember, Kamala Harris said something like, I'm not going to take a Trump vaccine. And so at the time, it was a Democrat position was vaccine hesitancy. This has been totally memory hold. And then after the election, the vaccine was actually, you know, held back until after the election. There's a guy, Eric Topol, who's talked about how that was like, there was a campaign or lobbying campaign like, to keep the vaccine back so, you know, it wouldn't affect the election either way. Then it flipped again, and now Democrats roll for the vaccine. Okay. And. And then eventually it became something where Democrats kind of give up on lockdown, and then the whole thing has gotten just sort of like, forgotten. And I shouldn't say forgotten about, but memory hold or not discussed. So the point is that's like, at least like, two or three or four flips, depending on how you count. Okay. And when you have flips like that, it's tribal, not ideological. Each tribe is saying what they. You know, there can be some rationalization for each tribe at any given point in time. Oh, I didn't think it was serious than I thought it was. Oh, I thought it was serious, and I realized it wasn't. And maybe there's some truth to that on, you know, but it's also something where A is taking a position because it's the opposite of B, and then vice versa because just stick a thumb in the other guy's eye. Does that make sense? You know?

[Tom Bilyeu]

Oh, yes.

[Balaji Srinivasan]

And, you know, the. The thing about that is, why is that important? It means talking about the United States is actually a misnomer. It's a disunited states. It's a. It's the individual states, and it's Democrat and Republican, and you Know, it's something where, like the flag itself is a contested symbol where you'll find people saying, you know, in your time, just like a year ago or something. What did they say?

[Tom Bilyeu]

It was like I had a friend that put a. An American flag up on his house and I said, oh, that's going to get ripped down. And he was like, oh, it already has.

[Balaji Srinivasan]

Yeah, a fourth.

[Tom Bilyeu]

And I was shocked.

[Balaji Srinivasan]

Yeah, Fourth of July, symbol of unity that may no longer unite people, make assumptions. So the flag is like a contested symbol. Okay. And that was like July 2021. The point being that, you know, I think the only thing that you can get super majorities 99 of Americans to agree is that they value the dollar, not the flag. That is actually the. It's an economic union, like the eu, where the dollar is the last tattered piece of paper that's holding the thing together.

[Tom Bilyeu]

Whoa.

[Balaji Srinivasan]

You know, and you know, like the EU has the euro, Right. It's like an economic union, even though. Right. So if there's like a serious currency crisis, which I think is coming because we're already in a background of high inflation, with all of these crashes, they're going to have to print. That's the high level version of why that printing will cause way more inflation. And then you have something. And you have options also, right? You have exits, you have alternatives, you have cryptocurrency and you have foreign currencies and you have other countries that are opting out and getting into gold or trading with China. The thing is, do you think that.

[Tom Bilyeu]

Helps or hurts the pull apart?

[Balaji Srinivasan]

Well, that's it. I mean, helps. It accelerates in a sense, right? Because a person can pass away without any successor, but for a system to die, it needs a successor or multiple successors. Like, let's say for the Soviet Union to collapse, people had to have an alternative system that they could look towards that they would copy. And so people copied the US System, Right. So when the Soviet Union went down, India moved towards capitalism and so on. China's only one that didn't. Right. It kind of kept its own system at the time, not the only one. There are five communist countries that stayed communist, but China was a big one that didn't. Almost everybody else went into the kind of capitalist liberal democracy camp. So right now what's happening, what happened in March is really apocal because you had, you had AI going vertical, and that's a whole other massive storyline that's like an entire multiple podcast, whatever. You had AI going vertical, you had the banking crisis getting Underway showing how important this devaluation of bonds was. And you actually also had China going vertical, which is much more important than people realize. Do you know what I mean by that? China going vertical in March.

[Tom Bilyeu]

No, I was going to ask you.

[Balaji Srinivasan]

This was just not covered in the Western press. It should have been blaring front page headlines and total focus on it. China developed a new muscle that I had not seen them flex. They had been kind of yelling and so on for the past few years. They developed the muscle of diplomacy and they figured out how to get a peace treaty between Saudi and Iran, which is a huge deal to get Saudi Yemen war to stop. To essentially unify the Middle Eastern countries around Chinese like China being the hegemon coming in. Like, like for example, they're forming like a unified navy in the region with Chinese input as an op, as a country to the US Navy. Okay, that's insane. Like totally different than what you think of as Middle east where everybody's warring. They're like all unified with each other. Saudi and Iran and China against the U.S. the U.S. is unified, its enemy. You have even Iraq like trading in yuan with China. You have the UAE trading in yuan with China. You have Brazil sending a massive delegation to China. You have Macron taking photo ops with Xi Jinping in China. And part of that is because again everything is connected. But the Ukraine war has caused such huge energy costs and other costs to Western Europe that Macron and France are dealing with like social unrestricted, you know, they're the yellow vests a while ago. And now there's people protesting pensions and other things. So he needs wealth for his country. And you know what, China's can export stuff and he can do economic deals with them. So that's why he's kind of part of why he's reaching out. There's reason is he, you know, has always wanted quote strategic autonomy for Europe. Then you have Southeast Asia, which is another contested region between China and the US and the Asian countries are saying they're going to de dollarize and they're taking, they, they, they have their own skepticism in part of China, but they're taking money from China and on and on and on and on. You know you have like basically the fact that China learned diplomacy is and is bringing also one more example. The, you know, Zelensky went and took a call with China and now Blinken, the Secretary of State has said China may be a partner for peace with Russia, Ukraine.

[Tom Bilyeu]

Okay, how seriously do you take the de dollarization?

[Balaji Srinivasan]

I mean would basically how Serious, I take it very seriously. And the reason I take it seriously is there's actually this great article saying China's, you know, unusual path to reserve currency status. Right. And what's it called? The, the renminbi's unconventional route to reserve currency status. And this was actually, here's, I'm pasting the link here in, in chat and it was also written up in the Financial Times and essentially the, the point they're making, if you remember that graph which showed that China traded with the rest of the world. Right.

[Tom Bilyeu]

The terrifying graph that shows that, yeah, they've basically taken over most of the world.

[Balaji Srinivasan]

Yeah. So a lot of people, the US is so finance heavy that people will point to the dollar share of reserves and say, hey, that's still really high, therefore nothing is happening. Right. But this is like pointing to, in my view, Soviet gdp. The USSR posted its highest GDP with its fake stats in the year of its collapse. Okay. The difference here is all these countries are trading with China. So if you go away from thinking about in terms of finance and thinking about instead in terms of trade or all these countries that get hard goods from China will use yuan to buy those goods from China. Right. So as you know, it's kind of back to the future. How did you know the US didn't start as a financial power, it started as a manufacturing and export and trade power. Right.

[Tom Bilyeu]

And that's a very interesting note.

[Balaji Srinivasan]

Right. You see my point, right? So it's not that big a deal for those countries to flip over to paying China in its own currency and holding some of that currency to pay for their imports from China. And those imports just keep surging. So, so that's like the, the fundamental is, I mean, it's not trivial to replace the financial system. But remember my points earlier on how fintech and crypto talent all around the world and people have launched currencies. There's countless fintech and crypto companies, payments companies. Right. So that talent is there in a way that it wasn't in 2008. People know how to do that from scratch. Okay.

[Tom Bilyeu]

I want to lean into this moment though. I think it's, it's really important to. Because what people are going to push back on there is they're going, okay, sure, they're doing a lot of trade in the yuan, but they're still reserving in dollars or storing value in dollars. Because they're doing that, it's never going to lose its status as a reserve currency. Because of that, we're going to be able to keep Printing money and also. And this will be big pushback. And this really resonates with me. And it's why I would not be putting any of my money into yuan. I don't trust the Chinese government not to seize it. So it's like, I get that countries are going to for sure, for sure they're going to do more trade with China, but if they're smart, they're going to keep them at arm's length. They're not going to overextend themselves. They're going to stay in the most trusted currency. Which the question becomes, will the most trusted currency be the US dollar? Given our very aggressive moves, certainly sanctioning the life out of Russia, that signaled to people that, hey, like, we're not afraid to weaponize the dollar against people. I think that's a terrible signal at a time where China is taking over a lot of the world trade. But I do have a feeling that people are going to be very hesitant to switch over from the dollar to the yuan. What say you to that?

[Balaji Srinivasan]

So that's why I was saying de dollarization is decentralization.

[Tom Bilyeu]

And so meaning it's not going to break over to China yuan, it's going to go into Bitcoin as but one example, or maybe just scatter.

[Balaji Srinivasan]

Well, so you forget about bitcoin for a second. Right. So I think because it's a big world with 8 billion people. Right. So after this thing fractures, you have, even if a few hundred million people pick an option, that's actually enough to do quite a lot with it. Right. So first let me just give some graphs to level set. Do you see this graph which shows foreign holdings of U.S. treasuries as, as, as a percent.

[Tom Bilyeu]

Yep. Of total debt. Yep.

[Balaji Srinivasan]

So that peaked in 2013, has declined quite a lot over the last 10 years. Right. Massive, essentially. Massive.

[Tom Bilyeu]

What percentage drop is that? Do you know?

[Balaji Srinivasan]

I mean, what from 34% to 24%, it's like 10% absolute.

[Tom Bilyeu]

Yeah, sorry, it's too small for me to read the numbers. I can just see the arc.

[Balaji Srinivasan]

Yeah. So it's 34% at the peak over here and there's 24% as of 2022. It's probably dropped off quite a bit more in 2023. So the point is that foreigners, when they're saving money, are not saving it in US Bonds in the same way they're reducing their bond holdings. Japan, China, et cetera. Okay. For the most part, there's a whole graph on foreign holdings of U.S. treasuries. So what are they buying instead? They're buying gold. So basically they're not saving.

[Tom Bilyeu]

So it's not just right here tells you something like this. This really is interesting to me. Now I look at this chart and I expect the price of gold to have skyrocketed, but it hasn't, has it?

[Balaji Srinivasan]

Well, so that's an interesting point, right? So basically, by the way, if you take this chart and the previous one, you can see as foreigners are buying less U.S. treasuries, they're buying more gold, right? Gold is a time tested way of physical gold is a time test way of saving. But you can just go and as a foreigner you can go and load in gold and get back yuan and more importantly, you can put in yuan and get gold out. Okay? If that is true, China does have an open capital account in gold. Okay. And the thing is that not everything, you know, not everything is necessarily reported. Have you heard my concept like pre headline people and post headline people?

[Tom Bilyeu]

No.

[Balaji Srinivasan]

So like a pre headline person think about like a CEO or a researcher or a reporter, right? The CEO knows a product is going to launch, A researcher knows a study is going to be published. A reporter knows a story is going to appear. They know something is true before the headline appears. Makes sense, right? Very. Whereas a post headline person can only process something that has been officially acknowledged by an establishment outlet.

[Tom Bilyeu]

Yeah, I talk a lot about this. As an entrepreneur, you cannot lead unless you understand the essence of the thing. If you understand the essence of the thing now, you can make predictions, you can move in a way where you don't have to follow people. That's a great point. Can I quote you quoting Elon Musk on this point really fast? You posted this tweet, I thought this was absolutely brilliant. So this is you like giving context for everything you're saying is going wrong. And Elon Musk tweeted, between Tesla, Starlink and Twitter, I may have more real time global economic data in one head than anyone ever. And then he goes on to say Fed data has too much latency. Mild recession is already here. It's not like just the canary in the coal mine. SVB died, one of the staunchest miners, Credit Suisse died too. And the cemetery is filling up fast. So one just sort of closing the loop on, on all the trouble and people seeing it, but reinforcing that point that you're making that there are people that are able to accrue data, to form a worldview, to have a hypothesis on where this goes and they're able to Move differently.

[Balaji Srinivasan]

Yeah. And the thing is there's a lot of people nowadays who are like regime apparatchiks who are just incredibly literal and you know, you know the term NPCs, right? Like very much so, yeah. Like anything that has not been published in an official source that they, that they think like they're Pravda is a conspiracy theory. Where's the source citation needed and so on and so forth. Like anybody, you know, if you don't have. That's why I said pre headline versus post headline people, they are so literal that they cannot make logical inferences. Right. And so, and that doesn't mean it's 100%. But for example, not every single currency deal that China has done has probably been announced. People speculate that they may be doing gold deals behind the scenes with the Middle east where that is a well known proven currency. And you know, where do I think gold, physical gold lens. I'll come back to the gold price. Gold price is increasing. Right. Where I think physical gold. I think physical gold is something that probably returns as a state to state instrument. And maybe Indians in particular use it as an individual thing. Gold is still like a big thing in India at the individual level. But the thing about gold is, you know, this overhead of verifying it and validating it and it can be spotted with the metal detector at the airport and all that type of stuff. Right. It's like physically hard to carry. It's not modern in that sense still as like a fire alarm, like as something that you can go ring, ring, ring and, and everybody runs out of a burning building and they converge on one spot that's like a proven spot before they go back to their homes or something. Gold's a pretty good shelling point. It's one of several shelling points. You know, bitcoin I think is another. Right. A point being that people who take like the very first order approach, oh, China doesn't have an open capital account, therefore I'm never. And, and certainly I wouldn't want to have a lot of holdings in the yuan, but people might keep a checking account in yuan to pay for their imports from China and they have their savings account in gold or perhaps their local fiat or bitcoin. That's what I mean by de dollarization is decentralization. Does that make sense?

[Tom Bilyeu]

Very much so.

[Balaji Srinivasan]

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[Tom Bilyeu]

So we haven't talked a lot about Bitcoin and actually do want to get a better understanding of where you think this goes. And we probably at this point need to get a peek into your future thing with America, American anarchy, China control, so on and so forth. But so one of the things that you really grab people's attention with is this idea that bitcoin will go to a million dollars. Anybody holding bitcoin sort of wants it to be true, but if you're anything like me, you also don't want it to be true because you know that it just the amount of brutality when you put out that tweet. I said I'll be a hell of a lot richer if that actually does happen. But oh my God, I hope you're wrong. So do you really see a path to bitcoin going to a million, or is it just going to be one sort of small player in this decentralized fracturing of a whole bunch of different? Whether it's coins or sovereign fiat that get a piece of the pie, you.

[Balaji Srinivasan]

See in the Atlantic, the trillion dollar coin might be the least bad option. Why? The legal scholar Rowan Gray thinks the US Mint can defuse and you see the United States of America, $1 trillion. Okay. And this is. Now, it wasn't actually pursued. Okay. But the fact that this was, this got closer to, to being done or discussed. Okay. And it was defended by Krugman, and it was only rejected from a optic slash tactical standpoint.

[Tom Bilyeu]

Why, Why a trillion dollar coin? What?

[Balaji Srinivasan]

What?

[Tom Bilyeu]

What?

[Balaji Srinivasan]

Oh, you don't know about. Okay, so basically because the debt ceiling, evidently this was something that they had a rationale that this would be a workaround and the treasury could mint a coin of any denomination. So it could just like they could, they could just mint a coin and deposit it and, you know, via some magic, the debt ceiling wouldn't be a constraint anymore in government spending.

[Tom Bilyeu]

I'm, I'm outright confused by this one. So I see a trillion dollar coin. I assume somebody's kidding and they're just talking about hyperinflation because it does make me immediately think about that.

[Balaji Srinivasan]

Oh, you hadn't heard of this?

[Tom Bilyeu]

No, not at all. If this is, this is a Meme, like what it.

[Balaji Srinivasan]

Have you heard of like modern monetary theory?

[Tom Bilyeu]

I've heard of it, but I couldn't tell you what it is.

[Balaji Srinivasan]

Basically it's a group of folks who believe that the only constraint on the US government's, you know, ability to print is inflation and taxation. Like that is to say they can and should print as much money as they want. You know, it. It is something which is just a legacy stupid constraint that we have a debt ceiling or whatever. It's essentially like, though they wouldn't phrase it this way at all, it's digital communism that says because the US has the government has guns, it can seize as much of your wealth as it needs to by printing money and it can force you to give it back at gunpoint if you want, so it can redistribute all the wealth and so on and so forth. Okay, so people. Which is true that it can digitally do that. And then the question is whether that breaks the illusion and people move to some other currency or whatever. Right. At which point you get to difficult situations. I'll get to. But this trillion dollar coin thing comes out of that school where they're like, we don't want to negotiate with Republicans over the debt ceiling. Instead we will use this, you know, thing in, in, you know, the legal code to mint a trillion dollar coin and deposit it such that we don't have to negotiate with Republicans at all. It's almost like an executive order. Right. The point is though, that this creation of money, they're obsessed with it. Like a lot of these folks are like, mint the coin. Mint the coin. Krugman has talked about it. This guy on Bloomberg, Wiesenthal has talked about it. Rowan Gray's talked about. It's in the Atlantic. It's taken seriously as a policy proposal. And it's gotten closer, you know, since the last debt crisis. Whether it actually happens or not, it's symbolic of the.

[Tom Bilyeu]

So the trillion dollar coin would go in somebody's bank account and allow them to.

[Balaji Srinivasan]

Not a humans, but in like, in like the government's bank account. And then it wouldn't need to, you know, like raise the debt ceiling because it now has the money. It wouldn't change anything is how they say. It wouldn't have any inflationary impact, I think. I'm kidding. Just Google, Google. Trillion dollar coin. See that? So see what's good is the expression on your face. Go ahead.

[Tom Bilyeu]

Yeah, I want to make fun of them, but I want to pause before I do that. I'm going to assume that they're smart, well meaning, well intentioned people, but they really believe this is going to work. And so one of us has the wrong base assumption. So here, here is a law that I live by and I really believe this is true. When two smart, well intentioned people think the other is stupid, they have different base assumptions. Now a base assumption is your belief about how you are and how the world is. And if now when you have a collision of values, it's a totally separate thing and that's how you, it's what you believe the world ought to be like versus how it actually is. So I believe maybe erroneously, but when I hear a trillion dollar coin, I have a base assumption that says if you print money, you have what you're calling tax. You have robbed people of the buying power because of something mechanistic, not something philosophical, something mechanistic, that there is now more money but no additional goods. And so the cost of the goods goes up because everybody's like so flush with cash that they will pay more for a finite pool of items. And so the cost of those items necessarily goes up to match the number of people just like throwing money at them. And so if you think like, oh my God, I just got a trillion dollars, but now your loaf of bread costs a trillion dollars. And so yes, you have a trillion dollars, but everything just costs more in proportion. And so you haven't gotten rich, like I will just tell you as somebody who went from normal money to rich in the refresh of a banking app, because I sold a piece of my company, like that moment where you outstrip inflation, your life changes, everything's different, you can afford different. Everything, everything. It's just like, it's a really fascinating moment. But if my rent, like if somebody gives me $100 million, but my rent moves up in proportion, I may have $100 million, but I still have to live in the same apartment, I still have to have the same car, my gas proportionately has gone up, foods proportionately gone up. So it, it literally doesn't matter. So what am I missing? Like if really take their stance for a second because I want to understand, like they're not idiots, they may be wrong or I may be wrong.

[Balaji Srinivasan]

Well, like, okay, so, so there's a few different filters on it. Right, I understand. So first is, you know, conflict versus mistake. It's like, is this something where they're just making a mistake or is it something where they're a different tribe and the government tribe, blue tribe, wants to attack Republican tribe or non government tribe? Right, that's one filter. The second filter is, you know, the 50 IQ. 100 IQ. 150 IQ meme.

[Tom Bilyeu]

Yes, and love it. But usually said to make fun of something.

[Balaji Srinivasan]

Well yeah. So 50 IQ guys like trillion dollar coin is stupid. 100 IQ guys like no. And then gives this whole Krugman gibberish on why, you know, like the trillion dollar coin won't be inflationary and so on. And the 150 is like, yeah, it's stupid, right? So there's like this is kind of like CDOs or AAA rated subprime mortgages. The 50 IQ guy says these people can't afford their house so why are you doing a loan with them? 100 IQ guy has all this stupid, you know, math or whatever that explains why, you know, that that house is good. And then the 150 IQ guy can actually go into the math and rebut it and say actually when the default rate rises above X, then you know, your CDO crashes Y and your CDS increases. So they can go in and plow through those abstractions and show why it actually collapses. But that's kind of what's in my view happening here. Now one thing I will say is I think a lot of the financial system is quote smart in the sense of playing a three card Monty on people. They'll go like this. And the thing is that the trillion dollar coin is less clever than their usual kinds of illusions. When they do quantitative easing or the bank term funding program that is set up to be hard to understand. It is like naturally selected and evolved to be understand. You know, I can prove that.

[Tom Bilyeu]

While you prove this, I want to ask a very pointed question. Do you think the people running the global. Because this seems like a global problem. Are the people running the global financial system evil?

[Balaji Srinivasan]

Um, so it's a really difficult question. I think some of them are evil. I think some of them are stupid. I think some of them have, are like Soviet. I think it's the closest analogy is like Soviet apparatchiks. Let's just go to 2008 for a second. There was some mix of fraud, some, some error, some like spin, some tribalism, some pseudoscience, right? And different people did different things at the same time, right? Like the result was evil, some of the inputs were evil, a lot of it was stupid. Like financiers thinking of everybody else as dumb and what have you. So it's a mix. You know, this is a way of thinking about it, you know, which is good is helping somebody else without concern for yourself. Smart is helping somebody else while also helping oneself. Evil is harming somebody else while helping oneself. And stupid is harming somebody else while harming oneself. And I think a lot of the things the financial system does are it's evil in the short run and stupid in the long run. Like they have a short term gain by harming somebody else, but they spend down, especially recently they spend on their trust. So they harm everybody in the long run. Like a lot of stuff they do with sanctions or freezing, deplatforming, censoring, that's not just the financial system but like the, in the social system, it has a short run advantage for, for them, the institutions that are doing this, but it's a long run disadvantage because it actually reduces their power. But they're so shortsighted or short search term oriented they only see that.

[Tom Bilyeu]

I'm going to sort of refute my own point here. So as you were saying that I really want to believe that people are well intentioned that they look at this incredibly complex thing that is the economy. They look at the modern miracle that is the modern economy. When you look back at, I mean tens of thousands, 20,000 years, that you realize that for a long time the sort of capital markets that make capitalism work, they didn't exist. And so we've had this just Cambrian explosion of betterment for the world with innovation and all of that because we, we really sort of master this economic game. Now as Ray points out, you unfortunately you are in the middle of these big cycles and when a de leveraging happens it's really brutal. But if you don't care about any one generation on the long arc of history, it's pretty amazing. And I've heard you talk about these helixes. So there is a sense of repetition in the way that societies move, but we are also moving up and we are making progress. And so that is, there's something very interesting there. So anyway, but when I look at that I do say to myself all of this makes a lot more sense once you know Nietzsche's will to power. And I do sometimes chastise myself for my really wanting to believe that the way that the global financial system is set up is well intentioned people who maybe have gotten out over their skis a little bit and they're really trying to do something wonderful and beautiful. But I do worry what I know about the Nietzschean idea of we all crave power, to be in control of our lives, to be in control of others, to be the one with our hands on the stick as it were, because once I let myself bring in that bit of darkness, my predictive engine works better, and that scares me.

[Balaji Srinivasan]

There's stupid and evil. There's also tribal. And if you remember, the thing about it's not one country, it's two parties. You know, the thing is, so, okay, if. If you just imagine like a. A Japanese guy was in Beijing and he just started suddenly knifing, you know, five Chinese guys, okay, that would be a huge incident. That would be something that be considered a crime by the Chinese government and the Japanese government, the guy would go to jail. Right? Be a huge thing. If that happened 80 years ago, right, when the Japanese were, you know, invading China, that guy might get. The Japanese guy might get a medal, you know, like bayonetting, you know, like Chinese soldiers who had never met. And the reason is that that was tribe on tribe tribal warfare. So. So that act that we'd consider evil when those tribes were not at war would in fact be considered laudable when the tribes were at war. And that's like conflict versus mistake. And so if you feel that the Republicans or the population at large or whatever is evil, then any deception or whatever. I mean, like, obviously the Allies deceived the Nazis during World War II and there's all kinds of spy versus spy, deception, sabotage, et cetera, versus the Soviets. You know, if it's another tribe, then people will do what they want to do and what they. What they feel is right for their tribe. They'll justify it that way. Right? And a lot of that, the trillion dollar coin stuff comes from make sure the Republicans can't hold us hostage. You know, and in fact, if you see this article, debt ceiling gimmicks. This is exactly what I'm talking about in terms of the evolution of camouflage. Okay? There were two courses of action that he's stating were equivalent. Minting a trillion dollar coin and premium bonds. The trillion dollar coin to even somebody without any finance or knowledge is just facially ridiculous. It summons a visual over here, premium bonds. Immediately people's eyes glaze over. Oh, that sounds maybe good. Premium bonds, right? And now you need to go through a long explanation of what they are. But notice he's agreeing that they're equivalent in terms of their function. But natural selection selected against the trillion dollar coin because it's too obvious and it's selected for the premium bond in his kind of thing over here. Does that make sense?

[Tom Bilyeu]

Does in that I understand the words coming out of your mouth, but I don't yet understand why a premium bond is Actually like a trillion dollar coin because presumably I buy premium bond.

[Balaji Srinivasan]

You have to go read this. You can read his whole thing.

[Tom Bilyeu]

Give me the punchline quickly. But first let me say for those that don't understand bonds, so I'd be buying a bond because I think that it's backed by the US government. I'm not going to lose my money. If I hold it to maturity, I at a minimum get my principal back and I may get some sort of return for buying that bond. So 1%, you know, in, in a low environment. So that seems okay because you're asking me to give you my money, basically I'm going to loan it to you, I'm going to buy that debt, but you have to give me my money back. Whereas in a trillion dollar coin you're just making it up.

[Balaji Srinivasan]

Yeah, but basically the thing, the point is I can explain how premium bonds work and this article does, but actually that gets us into the hundred IQ trap, right? Where the whole point is that Krugman is admitting that the trillion dollar coin and the premium bond are equivalent, but the premium bond is harder to explain and that's why it's a more likely path. And this is exactly how the camouflage evolves is the.

[Tom Bilyeu]

Okay, let me see if I understand. Yes, I understand the camouflage part, but let me understand why. I'm going to take my best guess at why they are the same. They are the same because the debt that they created, they create out of thin air. So I'm buying something that isn't real. I'm in a Wile E. Coyote moment of hey, I said this is real. You can give me money, it's all good. And I'm going to give you that money back. And the reason I can guarantee it is because I will print the trillion dollar coin in order to be able to pay you back. Because I'm just printing the money to make sure that I back that debt.

[Balaji Srinivasan]

There are two different ways to work around the debt ceiling and have arguments that you're not actually violating the debt ceiling thing, but still essentially creating new money. Right. And so, so that is that, that's like how functionally they're equivalent. I mean I, you can read it like, you know, I can explain it, but the point is getting yourself mired in that complexity. I mean you can't. Okay, what are they doing? They're issuing a new note with an interest rate that's far above market and they're selling the debt instruments for more than their par value already. It's like eye glazing you have to actually go and diagram this thing out. And that's the point. It's evolved camouflage. To give you another example, just do you see this video clip that I pasted in? Get more Care backed securities, subprime loans, tranches.

[Tom Bilyeu]

Basically, for anybody watching the the or just listening to the podcast is basically that financial instruments are designed to confuse you.

[Balaji Srinivasan]

Yes. This is a clip from the Big Short in a totally different context. The point is you could headline it and you could say, hey, this number of people who got a mortgage like this have gotten bankrupted in the future, had to declare bankruptcy or they lost a lot of money or whatever. Because this teaser rate is actually a terrible thing and your rates are going to go up and your payments are going to go up. Or they could say, look at our teaser rate, only 995, blah, blah, blah. And they could just sell it, right. And so when you're set, I mean the thing is Wall street and finance, as opposed to other sectors, like if you're producing, I don't know, bananas, you're selling the bananas and you're trading a good. Right. The other person is buying the banana for consumption value and utility value. Right. But when you're buying a financial instrument, I'm not saying that's always bad. Sometimes it's okay, right. But often at Wall street, it, it's something which is zero sum. You know, for example, you sell a stock and either it's going to go up or down. And if it goes up, then the buyer is getting a better deal. And if it goes down, then the seller is getting a better deal. So each party, you know, there's that question which is like, how are you screwing me? Right. That is what the Wall street guys ask each other. You know, you've probably heard that before.

[Tom Bilyeu]

I haven't heard it said like that, but that is not at all surprising.

[Balaji Srinivasan]

Yeah. And the difference is that when you go and you buy a banana or whatever from the groceries, like nobody's screwing anybody, Right. That guy produced a good. You gave some money and both parties are happier. Right? That's gains from trade in the stock example. I'm not. Again, it's possible that you sell the stock and it goes up, but you need liquidity at that time frame. Or, you know, like I'm not saying, I'm not pathologizing every single financial interaction like that. I am however saying that there is a greater degree of zero sum behavior there. Much greater degree. Right. And because of that, that culture has evolved and the contracts evolved. It's Easily spotted. Okay. If it's. It's obvious how bank A is screwing bank B, then bank B spots it. You see what I'm saying?

[Tom Bilyeu]

Yep.

[Balaji Srinivasan]

If, however, it's camouflaged in such a way, then bank B doesn't see the fine print. But bank A can be like, you agreed to X, Y, W and Z. We got you. Right. So each party is kind of weaponizing the contract system to try to fool the other guy into getting a worse thing. You know, this is dramatized in the movie Margin Call where, you know, the, the guys were fooling their counterparties into buying these assets when they were saying that they were more valuable AAA mortgages. You remember that, right? And so, so let me come back. So the point is, the financial system is set up to deceive you as to what it's actually doing. Hence, you know, Bernanke, for example, years ago talked about how quantitative easing wasn't printing money. But then more recently, Powell admitted that it was. Right, just to show you those two clips. Oh, I always, I always try to have citations for everything I'm saying.

[Tom Bilyeu]

Yeah, man. I have to say, that's one thing. Like you're. The way your brain works is terrifying. I don't know how you remember all these things, that they exist, first of all, and that B, that you can find them as quickly as you can. Yeah, I tweeted about that when I was researching it. I was like, what the hell? Your memory is prodigious. Is that like a thing you, you, when you think about your own identity, is, Is your memory being like freakishly robust part of your self identity?

[Balaji Srinivasan]

I. I don't notice it. It's like, I don't know, it's like your ears or whatever, something like that. Right.

[Tom Bilyeu]

Funny you should pick ears. First of all, I notice my ears because they are so big. And then second, I, I notice my memory because it is so shoddy. When I. Yeah, I. When I look at how much you reference, I have to believe that you, You. You remember a disproportionate amount of what you encounter. Or you have a time machine or something and you have more hours in the day. I don't know, but it is, it's very useful.

[Balaji Srinivasan]

I just remember a little snippet. It's like a little hash. And then I can look it up. Right. But partly is. I've got. It's kind of like I've got a story and it's like a clothesline and then I can hang things off of that, you know, Interesting. So it makes it's almost like remembering song lyrics. And you can, you can play it front to back, but it's not necessarily random access, you know, prompted recall. So here is Bernanke once again explains why QE is not money printing. Okay. And then after. So lie or they'll dissemble or they'll convince themselves it's not money printing. Because we intend to do quantitative tightening later. So we're not introducing into the system permanently. And you don't understand, you're not sophisticated. Right. And of course the sophisticated 150 IQ will say, well, you're never going to be able to tighten this Ponzi economy when you start. And that's exactly the problem. We have had 20 years of just absolutely systemic economic fakery. Okay, just to give you some examples, Bernanke talking about how the quote, great moderation, right. Means that macroeconomic volatility is over. All right. Meaning, you know, there's not going to be any more. We've solved macroeconomics. He was basically saying this in early 2000. Right.

[Tom Bilyeu]

Cheney said, the thing is, and they really, they really have gotten rid of that volatility. So my, my, like, central question is, does it break at some point? Because they really have reduced the amount of volatility tremendously.

[Balaji Srinivasan]

I disagree with, I mean, like just the 2008 crisis or 2020 Covid. That's significant macroeconomic volatility.

[Tom Bilyeu]

Yes, but compare that to 1929, man. It's like it, it was devastation.

[Balaji Srinivasan]

Okay, but like what he was talking about was there wouldn't be a financial crisis. Right. That like we solved macro. There's no business cycle. That's what he's talking about. Okay.

[Tom Bilyeu]

There's no business cycle. That isn't true.

[Balaji Srinivasan]

But, but let me give the totality is the great moderation. We've tamed macroeconomic volatility. Cheney saying deficits don't matter. Bush and Clinton blew up the mortgage bubble in a bipartisan way. I showed you those before.

[Tom Bilyeu]

Yep.

[Balaji Srinivasan]

In April 2008, Bernanke says we might see a mild recession five months before the collapse of Lehman. And certainly 2008 was not a mild recession. Right. Ratings Agency Institute.

[Tom Bilyeu]

Okay, so he said before the 2008 crisis.

[Balaji Srinivasan]

Yeah, that's my point. It could be a mild recession. That's not what it was. It was far, far worse than that.

[Tom Bilyeu]

Right, right.

[Balaji Srinivasan]

Yeah. Here the rating agencies in 2008 calling. Yeah. This thing, the great moderation was before the financial crisis.

[Tom Bilyeu]

He was like, we still think he has a point, but fair. So if he's saying that before when he's still like pounding his chest saying that there is no such thing as macro.

[Balaji Srinivasan]

Basically he's saying we solved Mac. He's basically saying we've solved macro. It's all done. It's a little bit like ruther. We've solved physics. There's nothing left before quantum mechanics.

[Tom Bilyeu]

It's like, you know, fair. But I would like to quote biology for a second. So maybe you've heard of biology, right? So one, an idea that you have that I think is, is really brilliant is that, okay, so give me, give me fiat currency. And what I'm going to do is I'm going to rob from you constantly, but just a little bit. And by doing that I'm going to be able to keep, I'm going to be able to keep it stable. So I think that, that what you're doing to the currency also applies to the macro economy. So I think that 2008 in any other time period is, is 10x that event that, that it actually was not saying that it wasn't difficult.

[Balaji Srinivasan]

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

[Tom Bilyeu]

Oh yes. A little bit of bad does a little bit of good. It's interesting. I would not have expected you to bring up hormesis in this context. So do tell how, how we get there here.

[Balaji Srinivasan]

It's like, so this is a kind of the graph, you know, like in. So it's kind of like if you have too much volatility, yeah, you're dead. Right. But if you have too little volatility, well, it's actually also worse than having some volatility that you can adapt to. It's like exercise. If you have too much exercise, you're dead. If you have too little, then your.

[Tom Bilyeu]

You know, you're basically going to decline and die.

[Balaji Srinivasan]

Yeah, that's right. But in the middle is kind of the sweet spot, Right. And so what a lot of the system has done is, and this is actually a broader point in many ways we have the eternal western present, right? Blue America is holding on to the present while the tech libertarians are in the future and the conservatives are in the past. And the Chinese and so on are both like the future and the past. They think of themselves as like the Chinese empire, right? So the western present is hanging on with its fingernails and you can see it in the financial system where it's like bailing out GM and 400 something companies and the S and P have no growth and they're all in tech and they're trying to prop up these existing institutions. But you can see it also outside the financial system where you have 70 and 80 year olds running for president and you have all the Hollywood remakes and Top Gun, Infinity and oh, we're going to do a cold war again. And it's all this stuff which is just referencing this increasingly distant faded glory and just Trying to keep the current system together and to keep the present going for as long as possible without adapting to the future. And then, you know, you get just. The whole thing just snaps and breaks, I think. Right. And then just like, you know, gets washed away. It's similar to, in my view, that the current situation is similar in some ways to before World War I, where, you know, you had. Before World War I, you had the kings and the nobles, you had the monarchies. And yeah, there was constitutional monarchy, but there's still absolute monarchies. And that world seemed like it was eternal and it wasn't going away. And maybe it was changing. It's changing very slowly. But under the hood, all these political movements, technological movements, industrial revolution, all this stuff was bubbling. And then in a cataclysm, like the modern world arose. Right? And we kind of saw some of that during COVID There was a lot of change that happened during COVID in a year that became like the year that the Internet. It was Internet first. Right. For example, every meeting now you can do a remote meeting. Digital currency rose like, you know, all kind. You know, all kinds of things. There's like civil conflict in this. I think in many ways, 2020 was a preview of what we're going to see in terms of like, just like 2008. It's like a preview of what we're going to see. It's like an appetizer before a main course of a lot of change happening at once.

[Tom Bilyeu]

All right, you have a very clear thesis on this. What, what is the change? What does the future look like?

[Balaji Srinivasan]

What does the future look like? So, I mean, I have a thesis, and of course, look, I could be wrong and so on, but the. And let me also give some optimism or whatever here. So let me see if I can.

[Tom Bilyeu]

Say in a few sentences, optimism or whatever. Let's hear it.

[Balaji Srinivasan]

All right, so the. The few sentence thesis is G7 countries are actually running out of money.

[Tom Bilyeu]

And.

[Balaji Srinivasan]

Will attempt asset seizure in the future, whether through inflation or actual seizure.

[Tom Bilyeu]

That is so dark. Where's. Where's my optimism?

[Balaji Srinivasan]

Okay, I'm getting.

[Tom Bilyeu]

That's terrifying. I don't know that people understand, like, how gnarly seizure is. So first of all, I have family in Cyprus. And so watching this happen, where the bank's just like, we're taking your money now. Crazy. Anyway, keep going. So there's going to be some kind of seizure. Agreed. Terrified, but agreed.

[Balaji Srinivasan]

So the reason, whether it's via inflation or actually seizure, I mean, the reason is, like, people didn't expect Dalio's Principles of the Change of World Order. It came out I think right before Ukraine and the rate hikes, you know, and it seemed obvious that the path they were going to take was just going to be printing a ton of money. But sometimes the path they take is a non obvious one and it may just be hiking rates to the moon and you're just watching the system collapse and you know, doing selective bail. We don't know exactly how the thing will unwind. Sometimes things surprise you, right? It's probably likely it's going to be printing. Point is though, G7 countries are going to have a real problem and they're going to be hard up for money. And then a lot of the world hinges on whether or not the G7 countries and China can seize digital assets. If they can, that's like one branch point in history. It means that you have like total states and the CBDC and so on and so forth. If they cannot, then you have a different branch point in history where it means that communities can now basically have digital gold or cryptocurrency and crowdfund bits of territory where they can have their own startup societies and eventually what I call network states. Okay. And then you'd go back to the future of something more like the 1800s where you could get a plot of land and you could build a town or, or something like that, or even, you know, the Alaska Purchase, Louisiana Purchase, things of that nature where their sovereigns would sell land. The real the branch point is fundamentally will asset seizure be possible in the digital world? And the biggest risk factor for that is actually Apple, Google and Microsoft because they have operating system access. And that's actually, if I think about what I'm most concerned about it is the fact that Apple has software update and Google can get into your Google Drive and Microsoft has Windows and if ordered by the state, in theory, they could scan your hard drive for private keys and then pull your digital assets. That is to me one of the most important problems that's coming up in the next X number of years. You might say, well that sounds kind of crazy, Balaji. And let me see if I can motivate that a little bit. In 2010, remember we talked about the Arab Spring, right? In 2010 the Arab Spring had happened and people knew that Twitter and Facebook had been a component in literally like the overthrow of countries. They had political importance. Remember that? Oh yes, yeah. Yet still in 2010, 2011, if you had said in 10 years the most important political issue in the world for at least for a few days will be whether the president can tweet. People would have laughed. Right. Come on. Because they thought that social media's destabilizing political impact, that its political importance was something that happened elsewhere. Right. That, you know, really wasn't a big deal at home. We have a culture of free speech. Who cares? Twitter is still calling themselves a free speech wing of the Free Speech Party. All that stuff was the early 2010s. Now, what's happened over the last 10 years, you know, from basically, let's say the 2010s is all politics became social media over the 2010s. And in my view, in the 2000s, all politics becomes crypto tribalism. Why? Because, again, taking that Twitter analogy, just like you went from Twitter being acknowledged to have political importance to being the main event of all politics. And every politician is on Twitter first, and they think about Twitter first often, as when they do something, they do a bill and they're thinking about it for Twitter. Right. I don't think that's. That's an exaggeration to say that. I mean, Twitter didn't just. The 2016 election also really wasn't about Trump. It was about Twitter. Twitter was upstream. It elected Trump, it elected Bolsonaro. It got Brexit through. It was essentially a parallel media channel. And that's why those elections flipped. That's also why there was a counter attack on Twitter from 2016 to 2022. And it looked like the genie had been partially pushed back in the bottle. But now Elan then freed Twitter again, and we have digital glasnost. Okay, so with that whole story, where even as big as social media had gotten to hundreds of millions of users, billions of dollars, public companies overthrowing governments in 2010, people still didn't think it was going to be the main thing for the President of the United States of America. With me so far?

[Tom Bilyeu]

Yep.

[Balaji Srinivasan]

Okay. So in the same way, in 2023, where cryptocurrency is. Is. It's a trillion dollars. It's hundreds of millions of users globally. It's quite a few billionaires, publicly traded companies, and even perhaps more importantly, every single bank financier government in the world has heard of bitcoin, and many of them have launched CBDC programs in part or in whole, motivated by the competitive threat of cryptocurrency. Okay. And El Salvador has adopted bitcoin as a national currency, and Panama and I think Central African Republic are considering it. And so it's kind of like the Arab Spring in the sense of there's like, there's already a political proof point of cryptocurrency's importance. You know, there's a Wyoming DOW law, there's the Tennessee DOW law, there's Texas saying bitcoin shall not be infringed. There's, there's all, you know, Colorado accepts crypto for taxes, blah, blah, blah, blah. There's all of this stuff that's happened. And yet still, if I said that in a few years, one of the most important questions in the world will be, does government have enough cryptocurrency to finance its operations? That still seems unrealistic. Okay. That's still something which seems distant. Oh, the US Government is going to count how much bitcoin it has. Right.

[Tom Bilyeu]

The looming question, though, that I hope you'll address is some part of me is like, yeah, that sucks. I want the government to be able to print more money. So sure. Right. And the good news is I'm learning about this stuff. So enough of me is like sort of old school that I still remember being blind to all of this and enjoying the magic trick. And so it's just that it breaks at some point. Anyway, go ahead.

[Balaji Srinivasan]

Today, if you look at Ben Bernanke talking about gold or you hear anybody in the establishment talking about gold, it's with an eye roll like, oh, stupid gold bugs, right? Bitcoin, it's not taken seriously. Digital gold, it's just not taken seriously. It's thought of as maybe, you know, if they're against it, they're against it because they think it's, oh, maybe it's instability or something like that. But they don't think of it as like a threat in the same way they thought of Christianity as a threat or, or capitalism as a threat. You know what I mean? Or nationalism. You know, like, those are things that they, they think of as a threat. Gold is thought of as a stupid curiosity. Right. Not actually something that could disrupt the system. That's not how it was in. Back in the day, 90 years ago. Do you know, like the most important thing in the world, basically, 1933 to 1935, like front page news, like 9, 11 or the financial crisis was the gold clause cases. Okay, so the gold clause cases were essentially the question of whether or not the US government under FDR could essentially default on its obligations and say, you know, the gold clause said the government will pay X amount of gold to somebody if, you know, like, like a bond. It was, it was basically a clause that was there to prevent inflation. Right. I could ask for my payment in gold, essentially. Okay? And FDR passed an Executive Order 6102, saying everybody had to surrender their gold. So that seemed to be incompatible with bonds that had been signed well before that. Said, the US Government will pay you in gold, but FDR is saying, I will seize the gold. Okay? So this went. There's a bunch of cases of different kinds that all got collected, went to the Supreme Court. And these. This was like the big event of like 1935, okay? Everybody cared about this. It's about a forgotten chapter in America's economic history, okay? And it was a huge deal at the time, okay? And the thing about it is gold was taken extremely, extremely seriously because they hadn't inherited the system. They were trying to build a new one. Fiat and Gold were fighting at that time. So the thing about this is when you go back and you kind of read about that, you're like, whoa, it's just all gotten totally memory hold, right? The emotions on it have totally changed. Nobody even remembers it. Right. And here I want to show you something. Hold on.

[Tom Bilyeu]

So, yeah, whenever you're pressing up on 100 years on something, the cultural memory is just not there. Nobody has emotions. Nobody's even grandparents have the emotion around that thing. And so us trying to capture that.

[Balaji Srinivasan]

It sounds very true. Because remember, you know, the Civil War, remember World War II, right? Yeah.

[Tom Bilyeu]

But none of that has real resonance anymore. Like, this is going back to your very statement about when you have to found it versus inherit it, even though World War II, we've got documentaries and stuff, nobody has a sense of, like the Greatest Generation anymore. Nobody has a sense of what they gave up. I don't know if you've seen that video of the World War II veteran crying because he's like, the things we had to do, the people that died, the things that we sacrificed, it's all for nothing. It's for nothing. Like, that was heartbreaking to see that guy, that's a guy with memory of what it means to go to war, who watched the guy next to him get his brains blown out. You know, like, imagine your friend next to you gets shot. There's. There's brain and blood in your mouth from your best friend. Like, that is very real to you. And so now all of a sudden, like, hey, you know what happens when things go wrong? So I do feel like that that is a big part of it to think that people from 1935 are going to have like some visceral sense of what it means when the government just, like, I'll, I'll take your gold now. And you know, I know part of the punchline of this where it's like, I'm going to take your gold, I'm going to buy it back at whatever, 70 cents on the dollar, or I'm going to buy it from you at 70 cents on the dollar. They literally just seize 30% of your wealth. It's bananas.

[Balaji Srinivasan]

That's right. So I, well, yeah, this is like a dilution of 70% by one measure. But yes, the cases dominated the news throughout the period. On January 13, Elliot Thurston, you know, wrote, rarely if ever has the Supreme Court of the United States confronted issues of larger import. 1935, on the morning after decisions, the New York Times ran five front page articles about them and they were the overwhelming focus of the news and business sections. For perspective, the number of articles devoted to them more closely resembles that of historic moments like the moon landing or 911 attacks than it did other major Supreme Court decisions such as Roe versus Wade. Okay. The phrase gold clause appeared in more times articles 49 on the day after than poultry, minimum wage, abortion combined on the days after Schecter, west coast and Roe. Right. Academics also touted the case's magnitude and import. Right. And so, you know, this has taken their place among the great landmarks of American constitutional history. So this is remarkable.

[Tom Bilyeu]

Dude, I think we're about to live through this again. I don't know what you think about this, but when I watch the, the posture right now towards crypto, this feels like capital controls in the making that they're revving up. I mean, with the, this, the requested freeze of binance US Assets, I don't know how that's going to play out, but man, that really starts to smack of like, hey, we're doing it. We're doing it to protect you.

[Balaji Srinivasan]

Don't worry.

[Tom Bilyeu]

But like, P.S. we're going to freeze your assets. It's like, what? I'm sorry.

[Balaji Srinivasan]

That's right. So the thing is, so the, the. One of the macro frameworks I have is, while it's not exactly reassuring, it is that history is running in reverse. Okay? So if you think of 1950 as peak centralization with one telephone company and two superpowers and three TV stations, you go forwards in time to 1991, the Internet frontier opens backwards in time to 1890, the American frontier closes forwards in time. You have COVID 19 backwards in time, Spanish flu. You go forwards in time. You have the tech billionaires backwards in time. You have the captains of industry, the Robert Barons and so on. And this is true. There's lots and lots and lots of events like this. I've got like 50 of them in the network state book and they get really amazing and detailed. Like, for example, you go forwards in time and China is a senior partner in the China, Russia relationship. You go backwards in time and the Soviets, the Russians are the senior partner in the Russia, China relationship. You go forwards in time and you have an Indian origin and Pakistani origin guy debating the partition of the UK because the guy who's, you know, the, the senior official in Scotland is a Pakistani origin guy and the British Prime Minister is, is, is Indian. You go backwards in time, you have British origin guys debating the partition of India. Okay? You go forwards in time and you have the New York Times siding with Ukraine against Russia. You go backwards in time. You have the New York Times siding with Stalinist Russia to choke out Ukraine with the Walter Duranty articles where, you know, the New York Times covered up the Ukrainian famine. Right. And, and that's like, remarkable where some of the same hinge points in history, so specific, are occurring again, but with the opposite outcome. A major one that's happening is, you know, there's actually a confrontation between journalists and founders, entrepreneurs and, you know, and reporters in the early 20th century that was like, you know, Ida Tarbell and all the, quote, muckrakers went and attacked Rockefeller and, and all the captains of industry, demonize them, lay the groundwork for the trust busting and essentially the government to take over and quasi nationalize a bunch of those companies with regulations and, and so on and so forth. And so Ida Tarbell and the journalists beat Rockefeller and the founders in the early 20th century. But now there is a similar clash that happened from 2013 to 2021 between the media and tech, the tech founders. But now it looks like the founders won that battle. Twitter and we have the all in podcast and we have, you know, all of these substacks and so on and so forth. Right. So we're seeing like some of the same like, like, like confrontations or conflicts. It's almost like you've seen these really complicated origami things and they fold and unfold, but you see some of the same faces as they unfold and fold. You know what I'm talking about?

[Tom Bilyeu]

Yep, yep.

[Balaji Srinivasan]

So, you know, I, look, I can't understand it all. This is such a huge thing that I can't pretend to understand this. This whole way that the world folds and unfolds in this way, I'm going.

[Tom Bilyeu]

To push you on that though, because. So I've heard you bring this up a lot and your punchline is always that there's something here, but I don't know what it is.

[Balaji Srinivasan]

So the two hypotheses that I think explain this are first that centralizing technology was rising for hundreds of years, going into a Peak in 1950. And so that's like obviously the nation state itself. Why should they? Obviously most people don't know. I mean, do you know what was there before Germany and before Italy and before France? That's a mess. That does not look, it does not look rational or logical from the standpoint of a map. And the reason is maps are actually like sophisticated maps are relatively new technology. That's to say they weren't there for thousands of years, hundreds of years. You know, a map is. Think about how hard it is to make a map. You have to be able to travel long distances pretty quickly. You need surveying technology. You know, like a straight line on a map seems like a small thing, but there's like mountains and swamps and all this crazy stuff in between them, right? So like map making, if you think about how you'd make a map and make it accurate, it's actually a pretty non trivial thing to do. Right? So on a map this doesn't look, you know, like all that rational. What it was organized by was not on the base of the lands, but the minds on the basis of communities of like mind.

[Tom Bilyeu]

What I hear you saying is that we have this constant tendency to bundle unbundle. Bundle unbundle. And so here we're looking at these different states that were unbundled for a long time. We have had a moment of bundling. And now as a part of the thesis around the network state, we're going to see this re unbundling. Now what I want to. Only in the west.

[Balaji Srinivasan]

Yeah, mostly. And I think the reason is, I think the future is a decentralized west and a centralized east. Like the east, meaning Russia, India, China, but especially India, China. And then, you know, a lot of countries have gone through social communism. They're like on their state capacity increasing arc getting better. Like roads are getting better, highways are getting better, infrastructure is getting better. They're on their increasing arc. The closer you are sort of blue America and the G7, you're on like a declining arc.

[Tom Bilyeu]

That's so crazy, man.

[Balaji Srinivasan]

It's the opposite of the 20th century, y'. All. So that's the other part, right. So the first part is centralizing technology. So just to continue my point, right. Why why would we see this, this history running in reverse? Well, going into 1950, you had mass media, you had mass production, you had mechanized warfare. You basically had to control huge swaths of land and natural resources. And you had to team up to not get beat up. Right. And that's why Germany was all these, like, little small principalities, but in part due to the Napoleonic wars, like, basically, you know, the concept of roll up in business, like, you take a bunch of small things, you roll them up, of course. Right. That's what the nation state was. It was basically like, you know, there are all these different groups in, like, the vicinity of what we now call France. And many of them didn't speak what we now call French. And after the French Revolution, they're all put together. They were all educated in the same language, they were unified in the same way. And this is. This is actually to, you know, they're bad parts of the French Revolution. Many bad parts. And people have written about that.

[Tom Bilyeu]

Namely the beheadings.

[Balaji Srinivasan]

Yeah, the beheadings and so on. But what people don't ask is why did the left. How could it work in the sense of after all that internal chaos and anarchy, how could they generate a military that could just go and sweep over everything else? Right. To the same extent you had a strong leader.

[Tom Bilyeu]

I'm very curious. Yeah. What do you think? Because researching Napoleon and his rise to power, this, this is my thesis on history. And people don't pay enough attention to history as a psa. When you have, like, the bundling as you were showing Germany, I was like, yeah, the only way to bundle that mess is if you have a strong man that comes in and, like, starts throwing his weight around and he's more intimidating and he'll like, he 1. He's creating order, so let's not discount that. So he's bringing order to something, but I'm gonna guarantee that he's doing it in a way where some people are just getting their neck stepped on. Like, even how Napoleon came to power, it's like, you won. He was truly a military genius, and so he could go in and bring the riches back. And so people are like, whoa, maybe this guy's better than we thought. And as soon as he started losing, then he was ousted. But if you're on a terror and you're able to intimidate back down your own people and go abroad, steal riches, win wars, man. Eat, like, now let's really get into the crazy stuff. The fact that Hitler. The Rise and Fall of the Third Reich. Fascinating book. Everybody should read it. The fact that he was able to talk. Oh God, what was it called? Czechoslovinia. Oh God, I forget the original name of what is now the Czech Republic. Always, for some reason, he talked them out of their country. There was no shot fired. He just literally talked them out of their country. So anyway, it can be a pretty dark period when you unite the bundling process.

[Balaji Srinivasan]

Here is something that might complement this view on the, like the, the strong man part of it is definitely, it's definitely a piece of it, but this is actually something I feel the right has a blind spot on, which is to say that. And this is, this is. These are broad generalizations, right. But typically the right thinks about things in terms of heroes and individuals, and the left thinks of things in terms of institutions and ideologies. So you don't just. The thing is, for something like, you know, Napoleon and at least my thesis on it. Look, I'm not a historian of the Napoleonic wars, but what I, what I think about it is it's not just that there was a strong man, there was a strong ideology. What I mean by that is Napoleon in a sense, benefited from the fact that they, the, the crazies of the French Revolution, while they've been crazy, they had unified France and their propaganda, they had, you know, essentially rationalized this whole thing. They'd smoothed it all out and everybody was under, you know, the control of this centralized government. And, and so the, the, the base of all these people who had been propaganda. As I should go and like, I'll double check, you know, all the things on this afterwards. But, but essentially that was something. It's a little bit like Mao did a lot of terrible things, I shouldn't say, but did a lot of things and unified China, right? So he did a lot of things and unified.

[Tom Bilyeu]

Shocking, but true.

[Balaji Srinivasan]

And he smoothed out all of these issues and so on and so forth. And then a right of center person could come in and like Deng Xiaoping is like capitalist, and then take that unified thing and then implement capitalism on top of it. And it turns out that it's kind of hard to unify a gigantic swath of land without using both left and right tactics. Tactics, because the right is like economics and, you know, the military, but the left is like propaganda and ideology. And even though it's not called this way, religion, right? It's, it's like the software that all these people are running in their heads. Why do they think of themselves as being part of the same people? Well, you educated them and you brainwashed them. And you, you know, you instructed them and you taught them and you made them do X and Y and Z. And the thing is, normally the, the right libertarian thinks about everything in terms of, okay, here's a fair trade, you pay me X and I'll pay you Y and so on. But the left authoritarian thinks, I'm not going to pay anybody anything, they're just going to do it. And you know what? If you can pull that off, it really, really scales. Right? Like you have no unit cost. Everybody installs the same software in their head. They're all basically educated to do the same thing and they have to do it and you're not going to pay them and in fact they're going to pay you. Right. If you can pull that off, you can unify this absolutely gigantic swath of territory. Right. And that's a really important component of it. It's not just the warriors, it's the priests, it's not just the swords, it's the words. You need that kind of unifying ideology. And I recognize it's an idiosyncratic way of thinking about right and left. I talk about this at length in the net profit stated book. But that's why it's not enough to just have a strong man. What I mean by that, just to take a reductio ad absurdum. I know it's not the sense in which you mean it, but if you just have a guy who comes out of a weight room, he's a strong man. Why do people follow him? Right. He has to actually be a leader in some sense. He has to have the ability to run an organization. He has to have some motivating ideology. You know, this is also in the, the kind of small version of this. It's not that small, but like somewhat small and is like a founder who's got a vision for changing the world as a company. Right? Yes. They have the right aspects of, you know, hierarchy and capitalism and meritocracy or whatever, you know, like stereotypically. Right. But they also have the left aspects of a mission and like often an egalitarian dress code. And we're all in it together against this, you know, oppositional kind of thing, you know, like a, like an insurgent or revolutionary movement. Right. Which have historically been left things. And so I think you kind of need both. Anyway, coming back up. So point is that for 500 years, going into 1950ish, you had this centralizing tendency and this was something where you had small city states, couldn't compete in fact, one way of showing that the exception that proves the rule. Do you know this country called San Marino?

[Tom Bilyeu]

Oh, yes, I've heard you talk about it. Yeah, that was the protectorate of like a guy who becomes king and then he like, lets them.

[Balaji Srinivasan]

Wow, you really there. You really have done your research. That's right. Yeah. So, yeah. So Garibaldi, when he was unifying Italy, San Marino at least has the story has it gave him refuge, and so he let them be sovereign. And so you can see, like this duck Bill Platypus, you know, this missing link that exists to the present day. San Marino is like a piece of what the past was, okay? And it's like surrounded by Italy. It clearly is like. It's like 30, 000 people or something like that, but it's maintained its sovereignty through the years. And you're like, oh, why is that not just a piece of Italy? It's like, it's like a tiny town, really, you know, in Italy. It's a totally fine place or whatever, right? And their UN membership is very valuable to them and. And whatnot. But now you're like, oh, okay. That's what the old world was before all got rolled up into these gigantic centralized nation states. Part of why the things get rolled up into nation states is defense and production and scalability and so on. All these centralizing tendencies, okay? And so what you got in 1950 was a very atypical thing for the whole world. Like, you had this gigantic American empire with hundreds of millions of people, and you had the Soviet empire with hundreds of millions of people. The Chinese, you know, Indian. These are just like a relatively few number of states, and many of them were running, like, just two operating systems, right? Capitalism and communism. This is a very, very, very centralized world with lots of the, you know, differences of different cultures and so on all just got steamrolled, paved over. And the best version of that was everybody watches I Love Lucy in the US at the same time on the same channel, you know, and they're all like just the same softwares, insulting their heads. I Love Lucy, you know, like this, right? And the worst is, you know, like Mao's Little Red Book or, you know, like Hitler or Stalin or something like that, right? That's like, you know, just the propagandizing, right? And so point is that right around that time, what's interesting is sometimes at the very peak of something, something's invented. So transistor was invented, right? And so you go from transistor to the computer, you know, mainframe and then the personal computer and you have cable television and you have the Internet, of course, and the smartphone and cryptocurrency. And for last 70 odd years we've been in a decentralizing arc that is faster in my view than the centralizing arc.

[Tom Bilyeu]

Is the decentralizing arc, is that pathological? Is it a breaking apart inappropriately? Or is there something good here? Because you have a picture of how this can become good. But it feels like it's born out of rot, if I'm completely honest.

[Balaji Srinivasan]

It's both. And right. It is something where like for example, Blockbuster is an example of a company that was set up under a certain set of technological assumptions like home video rentals and so on, that turned out to just be a window in history that was within our lifetime. And it rose and it died, right? It rose, you know, when it was a technological pioneer on the basis of like home vhs, when that was a breakthrough. And then it fell once streaming became possible. Right. We saw that within our lifetimes with me so far, Right?

[Tom Bilyeu]

Yep.

[Balaji Srinivasan]

So you think about the giant centralized state and it's like Blockbuster, where there was a point at which it was riding the curve of technological innovation and it was just crushing everything in its path and now the technological wave is against it. And those ideologies that seemed unstoppable when the technologies favored them, those organizational structures, you know, for example, Blockbuster had physical stores all around the country and it had late fee policies. Its entire business model, its organizational culture was based on this DVD that you come back home, it had popcorn that it sold. Right? All that stuff gone with Netflix. Netflix, Netflix doesn't sell popcorn. Netflix doesn't have in person stores. Netflix just streams the video to you. It doesn't have late fees. All every aspect of the business model got just totally destroyed by technology. And we saw that in our lifetimes. Right. And you just now have to take a wider lens and you think of that happening not just to companies, but to countries. And the thing is that we don't usually found that many countries. There actually have been quite a lot that have been found over the last seven years. That's a very counter to thing.

[Tom Bilyeu]

There's an idea here that I find very interesting. So you have this force working against us where. Or for. Or against us where we're centralizing, decentralizing. But what feels like, at least in the example that I can think of, certainly with the us, maybe even with Mao, definitely with Blockbuster, is there is a category error that's made and the category error blinds people. To the path to the next societal movement. So take Mao's China, take Blockbuster, which I did not expect to be drawing a parallel between these two, but I think the same thing is happening. And then I'll bring it back to the US which is why what I'm really thinking about, obviously, because I live here. So.

[Balaji Srinivasan]

Can I jump in for a second? The corporate analogies might. The corporate analogies might seem trivial, but they're not. Because there's some of the largest scale experiments we can run within our lifetimes. You know, you're talking about millions of people, billions of dollars, and they're founded, they grow to maturity, and they die over 10 to 20 to 30 years. Right? You. You cannot run experiments that are much longer than that within one human lifetime. That's why corporate history is actually very useful to study because you can relate to it to a greater extent, whereas history books are farther and more distant.

[Tom Bilyeu]

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[Balaji Srinivasan]

That's what happens to hackers when Cisco Duo's on watch. Every login, every device, every user protected. Cisco Duo fishing season is over. Learn [e-mail].