Speaker 1: All right, Matthew Pines, director of Intelligence at Krebs Stamos,
Speaker 1: so a national security fellow, You're pretty tied in on
Speaker 1: the kind of global techno industrial war that's going on,
Speaker 1: a term that you've kind of used, geopolitical, cyber all that. So, man,
Speaker 1: there's so much we can jump in today. I'm excited
Speaker 1: to have you. Thanks for joining me.
Speaker 2: Yeah, thanks for having me.
Speaker 1: So, you know, I know we had some conversations offline
Speaker 1: kind of talking about this kind of global game of thrones.
Speaker 1: When I was a kid, game my parents played was
Speaker 1: this game of risk, which was like this board game,
Speaker 1: you know, and if you think about it like that,
Speaker 1: we're sort of seeing that where. You know, something I've
Speaker 1: been talking about is this decentralized revolution. Now, the world
Speaker 1: had been moving towards this globalism and kind of one
Speaker 1: world government, you know, centralized world, and now it seems
Speaker 1: to be kind of breaking apart back into whatever you
Speaker 1: want to call it, multipolar world whatever, And that seems
Speaker 1: like there's a lot of things, a lot of interest,
Speaker 1: a lot of things going on there. You kind of
Speaker 1: framed it up in this techno industrial war. I think
Speaker 1: you kind of said there's a lot of arenas inside
Speaker 1: of that.
Speaker 3: So why don't you just frame that up for us first?
Speaker 4: Yes, I mean at the level of great power is
Speaker 4: great power competition, which is the era that we're in. Like,
Speaker 4: competition is over what are the instruments that modern states
Speaker 4: rely on to accrue and project power. And in the
Speaker 4: modern sort of technologically driven civilization, that's basically predicated on
Speaker 4: controlling capital flows, controlling supply chains, and controlling the most
Speaker 4: advanced technologies and the networks that the world system runs on. Right,
Speaker 4: So the world is now a wash in networks, networks
Speaker 4: for finance, right, banking networks, networks for data like the
Speaker 4: Internet that often you know, banking transactions go over as well,
Speaker 4: networks of supply chains, trade relationships, military alliances, and so
Speaker 4: network power is sort of what people are competing over,
Speaker 4: and the dominant networks that determine who is going to
Speaker 4: win or lose in those competition is who has sort
Speaker 4: of the choke point and surveillance control over those networks.
Speaker 4: And that is a sort of an almost an all
Speaker 4: or nine game, right, And so the United States has
Speaker 4: been in a position post war of building a globalized
Speaker 4: system where it had the dominant role in those networks
Speaker 4: it had the keynodes, or it had alliance networks that
Speaker 4: give it access to those keynodes, whether it's surveillance over
Speaker 4: the global Internet, whether it's influence over global trade policy,
Speaker 4: whether it's controlling of global shipping lanes. And that's the
Speaker 4: world's system that we think about kind of the hegemonic
Speaker 4: sort of unipolar era. It's sort of defined by the
Speaker 4: United States control over these critical networks. And so China has,
Speaker 4: you know, embarked on a strategic effort of the past
Speaker 4: twenty you know plus years to either displace those networks
Speaker 4: or to complete and replace it with their own, or
Speaker 4: try to co opt and take over US's or the
Speaker 4: G seven's sort of legacy position in controlling the existing networks.
Speaker 4: That's like the macro frame for the competition we see,
Speaker 4: and you can sort of chunk that into kind of
Speaker 4: the financial dimension, the technology dimension, the military dimension, et cetera.
Speaker 3: Where does the information fit into that dimension?
Speaker 4: I mean that is I mean this kind of a
Speaker 4: cliche to say data is the new oil, but that
Speaker 4: is increasingly a subject of intense geopolitical competition.
Speaker 1: But would you separate data from from information? So when
Speaker 1: I think about like all we're constantly hearing. Well we
Speaker 1: already know to your point, China kind of had their
Speaker 1: own network, so they had the great firewalls. They control
Speaker 1: the information that comes in, so they don't want you know,
Speaker 1: Western social media or Google to influence their people. And
Speaker 1: now today we continue just pounding in our misinformation. Misinformation, uh,
Speaker 1: you know, from the globalist the world that comic for
Speaker 1: them all the way down to the Biden administration misinformation.
Speaker 1: So it seems like the war is about controlling money
Speaker 1: and controlling information.
Speaker 3: Would you put data and information in there together?
Speaker 4: I would say information in the sense of like consumable content. Yeah,
Speaker 4: that human beings can and just understand is a subset
Speaker 4: of all data. Right, So there's lots of packets going
Speaker 4: across the internet, whether it's transactions for you know, just
Speaker 4: sort of stock trades that are not human readable, and
Speaker 4: so yeah, like competition and state interest in controlling say
Speaker 4: another nation, ability to influence what your domestic population is
Speaker 4: consuming as like you know information you know that determines
Speaker 4: their political attitudes, their beliefs about say conflicts, who's responsible
Speaker 4: or who isn't for particular foreign conflict to try to
Speaker 4: shape attitudes and motivations at a domestic level. That's that's
Speaker 4: a capability that a lot of states have always invested
Speaker 4: in and try to say, plant stories in a foreign newspaper,
Speaker 4: but it took a lot of effort. You had to
Speaker 4: like have an intelligence operation to recruit a journalist in
Speaker 4: a foreign country, and you know try to do you know,
Speaker 4: strategic influence operations to shape kind of policymaking or broader
Speaker 4: public perceptions. I think one of what has been accelerated
Speaker 4: with the advent of sort of global platforms for technology
Speaker 4: is that that game is now playing out at a
Speaker 4: much faster scale in a much more fine tuned manner
Speaker 4: where you can you can you can have sort of
Speaker 4: active operations to influence perception across borders. So global platforms,
Speaker 4: both the US based platforms as well as you know
Speaker 4: foreign platforms for social media, for news, et cetera, are
Speaker 4: are pervasive across multiple different jurisdictions.
Speaker 2: And that is that when you're in.
Speaker 4: A global world where you know there warn't as intense
Speaker 4: you know, state rivalries and competition over political influence operations
Speaker 4: and you could kind of like let it simmer in
Speaker 4: the background. Now we have acute tensions of play now
Speaker 4: we have live, you know, issues where states are trying
Speaker 4: to manipulate the ability of you know, other citizens to
Speaker 4: perceive what you know is happening and what views they
Speaker 4: should hold.
Speaker 2: And that is where the.
Speaker 4: Tension between open, free discourse and a civil society starts
Speaker 4: to run up against concerns about say, foreign influence operations
Speaker 4: or deception by say, you know, parties that have control
Speaker 4: over algorithms that aren't that aren't visible to the public.
Speaker 4: That's that's seeing what feeds are generated. And yeah, this
Speaker 4: is a that is a subset like the competition over information,
Speaker 4: and it's really premised on the fact that we now
Speaker 4: live in a global technological civilization that uses these platforms
Speaker 4: to share information on a global scale.
Speaker 3: Yeah.
Speaker 1: Yeah, you know, one thing I talk about all the
Speaker 1: time is kind of these three converging cycles, and it's
Speaker 1: the political cycle, two and three year political cycle, eighty
Speaker 1: year financial cycle, with a fifty year tech cycle. And
Speaker 1: how when you look back history's always technology that changes
Speaker 1: the world the most because it changed the way we organize, communicate, work.
Speaker 3: Et cetera.
Speaker 1: And it's almost like technology is just advancing way faster
Speaker 1: than our civilization or really our political structures have advanced.
Speaker 1: So if you look back to the Industrial Revolution, which
Speaker 1: was obviously a big technological revolution, and it really created
Speaker 1: this centralization and then it led into kind of you
Speaker 1: Henry Ford with the assembly line mass production, and then
Speaker 1: you had mass productions. You had mass amounts of people
Speaker 1: working on the assembly lines, and you had to come
Speaker 1: up with a management structure that managed them.
Speaker 3: All like a cog and a wheel.
Speaker 1: So even though you're way smarter than me, we work
Speaker 1: on the assembly on line next to each other, we
Speaker 1: do the exact same job, and so we come up
Speaker 1: with mass management for managing the masses, and then you
Speaker 1: kind of had this political structure that's set up on
Speaker 1: top of that. But today, now we're in this information world,
Speaker 1: we're no longer in that world, but the political structures
Speaker 1: really haven't changed. It seems like, and I guess these
Speaker 1: types of technologies are really going to try to either
Speaker 1: we're going to force that change or they're going to
Speaker 1: restrict the technologies.
Speaker 3: I guess those are kind of the two options that
Speaker 3: we're running into.
Speaker 4: Yeah, I think you're seeing this tension play out with AIS.
Speaker 4: Like one particular example where the pace of change is
Speaker 4: happening relatively faster than what let's say, the political institutions
Speaker 4: and regulatory bodies can accommodate. And so there's essentially a
Speaker 4: bargaining process that we're witnessing unfold between the political economy
Speaker 4: of the sort of technical private sector actors that are
Speaker 4: leading the development and deployment of these tools and the
Speaker 4: regulators who are facing this challenge of do they let
Speaker 4: it the horse off the leash or do they try
Speaker 4: to harness it without you know, crushing its potential to
Speaker 4: you know, transform their economies.
Speaker 2: And they're they're struggling with that right now.
Speaker 4: And I think this is an age old version of
Speaker 4: an old or new version of an age old question
Speaker 4: of where's the balance between you know, adapting your institutions
Speaker 4: to meet the pace of the of the technology change.
Speaker 4: At what point, though, is the pace of that technology
Speaker 4: change to sort of outstrip the capacity of those institutions
Speaker 4: to reform themselves or adapt over time.
Speaker 1: And not just not just outstrip them of their ability
Speaker 1: to transform, but it sort of makes them all slete
Speaker 1: in a sense where like that structure was set up
Speaker 1: for the time when it was set up, but we're
Speaker 1: not in that time anymore, and that structure doesn't really
Speaker 1: make sense anymore either.
Speaker 4: Maybe well, it's interesting, I think you're seeing a reconfiguration
Speaker 4: or reconceptualization of what sorts of political structures win or
Speaker 4: lose in.
Speaker 2: This sort of maybe in this new world. Right.
Speaker 4: So, China has a certain model of which you might
Speaker 4: call it authoritarianism as a service or sort of techno
Speaker 4: authoritarian governance, where they they're trying to leverage the fact
Speaker 4: that widespread surveillance artificial intelligence tools connecting everyone's activities and
Speaker 4: behaviors into you know, essentially into the state monitoring system
Speaker 4: allows them to more efficiently manage essentially an authoritarian structure
Speaker 4: right where it's a one party state rule.
Speaker 2: And then they're sort of.
Speaker 4: Trying to test that thesis of can you actually have
Speaker 4: central government run a complex society using technology to help,
Speaker 4: you know, mitigate the you know, the legacy kind of
Speaker 4: Hyaki and information problem, right like, can you actually centrally,
Speaker 4: you know, compute all the relevant information that you need
Speaker 4: or to maintain that centralized control. But it is an
Speaker 4: attractive proposition that China is trying to sort of model
Speaker 4: for the rest of the world, is saying, we can
Speaker 4: help bootstrap your economies. You know, into the digital age
Speaker 4: will but will it'll come with these tight control knobs
Speaker 4: that allow to kind of tune to make sure it
Speaker 4: doesn't spit spin out of control. I think in the
Speaker 4: Western system we're struggling with in a different way because
Speaker 4: it does empower, you know, certain elements in the society,
Speaker 4: often at the expense of might say like liberal democracy. Right,
Speaker 4: you get a concentration of data in the hands of
Speaker 4: you know, opaque you know, big tech firms and and
Speaker 4: and government agencies that gives them insight that that the
Speaker 4: public doesn't have necessarily, and so with that comes power,
Speaker 4: with with that, with that asymmetry potentially challenges like the
Speaker 4: premise of kind of you know, the the Detaqueville kind
Speaker 4: of democratic ideal where like, you know, everyone is someone
Speaker 4: on an equal playing field. They can have a participatory
Speaker 4: like a participatory civic discourse you knows, all issues and
Speaker 4: debates in the public square and then vote and you know,
Speaker 4: you know, that's how it goes. But now we might
Speaker 4: be entering air where technology fundamentally, you know, constrains that
Speaker 4: vision of liberal democratic discourse upon which you know, you know,
Speaker 4: our political institutions were we were premised and I guess
Speaker 4: we'll see. I mean, there's other technology forces that you
Speaker 4: know obviously in bitcoin that sort of represent a different trend, right,
Speaker 4: you know, there's technology trans lead to centralization of data
Speaker 4: and access to sort of critical trick points. And there's
Speaker 4: technology trans lead to uh, you know, disegregation decentralization of
Speaker 4: those sorts of notes. And I think that's the battle
Speaker 4: you're seeing in the in the in the sort of
Speaker 4: the the evolution of bitcoin in particular, where where that
Speaker 4: that that debate is playing out in real time.
Speaker 1: Yeah, I want to I want to pull on that
Speaker 1: thread a little bit more. And I know, you know,
Speaker 1: you get into a lot of this stuff, including philosophy,
Speaker 1: so it'd be fun to kind of just game plan this.
Speaker 1: But kind of back to what I was saying, which was,
Speaker 1: you know, if if one form of government, if technology
Speaker 1: caused centralization.
Speaker 3: And which caused the form of government.
Speaker 1: But now we have technology creating the opposite force, which
Speaker 1: is decentralization. So we don't have giant corporations with people
Speaker 1: working them. In the United States, we don't have railroad
Speaker 1: and steel industries anymore, right, So we.
Speaker 3: Don't have these bigger operations. Now we have small, independent people.
Speaker 1: Working all over the world over the internet, right, And
Speaker 1: at the same time, the governments have continued to get
Speaker 1: bigger and bigger and bigger and more powerful, but people
Speaker 1: have got more and more decentralized at the same time.
Speaker 1: So we have like two opposite forces almost where government's
Speaker 1: getting bigger and more centralizing to your point, centralizing all
Speaker 1: these data sources inside hands of corporations, but at the
Speaker 1: same time you have people that are decentralizing and moving
Speaker 1: apart and have all different interests based off of their
Speaker 1: locale that they're in, et cetera. And so I guess
Speaker 1: I kind of asked that question, but do we kind
Speaker 1: of hit a wall and it sort of seems like
Speaker 1: we are. So it seems like the governments want to
Speaker 1: continue the growth trajectory, but then at the same time
Speaker 1: the technology is pushing this decentralized decentralization technology. I guess
Speaker 1: we'll see how that plays out. I don't know, it's
Speaker 1: just it's interesting to watch play out, and there's really
Speaker 1: this power struggle. But jumping back into kind of this
Speaker 1: techno industrial war. So before we kind of dive into that,
Speaker 1: I want to dive in. You've already kind of mentioned
Speaker 1: China's role. So I want to talk about a little
Speaker 1: bit more, but before we do, if we just kind of,
Speaker 1: like again like playing a game of risk, first identifying
Speaker 1: who the players of the board are, right, and so
Speaker 1: then understand that each have their own regions and own
Speaker 1: interest right, So you know, I might look at it
Speaker 1: like we kind of obviously have this war with Russia
Speaker 1: going on right now, which seems to me like is
Speaker 1: kind of like this stand against globalism almost where like
Speaker 1: NATO and the WEF or whatever kind of going after that.
Speaker 1: So you know, but now we have kind of China
Speaker 1: that seems to sort of kind of be partnering with Russia.
Speaker 1: So I don't know if there's like the US potentially
Speaker 1: with you know, euro Davos, NATO, and then we have
Speaker 1: kind of Russia, we have China, and then maybe we
Speaker 1: have like the global South the bricks, and maybe those.
Speaker 3: Are different players.
Speaker 1: But then maybe really Russia China working together, Maybe China
Speaker 1: is just the big goog and maybe it's the US
Speaker 1: and China.
Speaker 3: Like how do you kind of view that game board?
Speaker 4: I mean, it's like complex, and I think there's a
Speaker 4: lot of different frames. I think one useful frame is
Speaker 4: like a simple triangle where the three points of the
Speaker 4: triangle are like credit, commodities, and production, and you look
Speaker 4: at what are the geopolitical power blocks that are sort
Speaker 4: of relatively dominant in each of those, like you know,
Speaker 4: kind of key elements of the global system.
Speaker 2: Right.
Speaker 4: So like credit or money is dominated by G seven, Right,
Speaker 4: it's dominated by by the US, and it's G seven allies.
Speaker 4: You know, those are the largest you know economies. They're
Speaker 4: also you know, the dominant financial centers.
Speaker 1: Right.
Speaker 4: And the influence or the power that that part of
Speaker 4: the triangle deploys is mainly through you know, control over
Speaker 4: the financial system, sanctions, overall global regulation, kind of the
Speaker 4: rule of law that that that defines kind of the
Speaker 4: global system that's been constructed post forty five.
Speaker 2: The other leg of the other sort of point of
Speaker 2: the triangle would be like the commodity point.
Speaker 4: And that's interesting OPEC plus So that's basically Saudi's in Russia, right,
Speaker 4: So that is they're providing the dominant raw inputs into
Speaker 4: the global system, right, oil and you know raw commodit
Speaker 4: for the for the consumption of of the of mostly
Speaker 4: the West. And then you have a production which is
Speaker 4: mostly China, right, And So they're the they're the they're
Speaker 4: the manufacturing engine in the world. They're the largest trade
Speaker 4: partner for almost, you know, the vast majority of of
Speaker 4: of the countries on the planet, and they're increasingly using
Speaker 4: their roles in manufacturing powerhouse to build up their military capacity.
Speaker 4: So each of those kind of three points in the
Speaker 4: sort of global system, when they were kind of in
Speaker 4: frenemy mode, that's how you got globalization. That's how you
Speaker 4: got you know, the post Soviet collapse era sort of
Speaker 4: unipolar hegemonic moment where everyone thought everyone just begintting rich,
Speaker 4: China would join the wto Russia would eventually sort of
Speaker 4: accommodate to more of like a you know, a close
Speaker 4: relationship with Europe as their energy provider. Middle East was
Speaker 4: always going to be maybe a little bit of a
Speaker 4: other problem, but we had the oil supply secured with
Speaker 4: a good close biolot of relationship between the US and
Speaker 4: the Saudi's, and the kind of the world system would
Speaker 4: just kind of churn along. And I think what we're
Speaker 4: seeing in the past few years is that that that
Speaker 4: frenemy mode relationship between those points of the system is
Speaker 4: sort of starting to break down, right Obviously, the the
Speaker 4: Ukraine War is a good example of where like the
Speaker 4: relationship between G seven capital and OPEK plus specifically Russia
Speaker 4: is broken, right, Like that's the sanctions, that is the
Speaker 4: export restrictions, that's the oil price cap, et cetera. On
Speaker 4: the other leg, between SA G seven and China, you're
Speaker 4: seeing you know, not as an extreme breakdown is between
Speaker 4: Russia and the G seven over Ukraine, but you're seeing
Speaker 4: increasing tension export controls, technology restrictions on China. We had
Speaker 4: the trade war under Trump, the increasing you know, concerns
Speaker 4: and anxiety over Taiwan invasion scenarios, quote unquote decoupling or
Speaker 4: de risking among major multinationals about their approach to China
Speaker 4: as a base of manufacturing operations.
Speaker 2: Et cetera.
Speaker 4: So that is like how I would views like the
Speaker 4: main global players is like you know, money, commodities and production.
Speaker 2: And then of course on top of all that, right,
Speaker 2: you have like the.
Speaker 4: Syncratic kind of i'd say, like structure that has developed
Speaker 4: in terms of uh, like just just money itself. Right,
Speaker 4: there's the G seven as like a power structure that's
Speaker 4: defined by like formal government institutions. But you've also had
Speaker 4: just so much wealth generated in non government spaces that
Speaker 4: that has now and I think an increasingly relevant like
Speaker 4: geopolitical effect. But those those that money doesn't really to
Speaker 4: first order, like carry a flag, right like Chinese oligarchs
Speaker 4: and Russian oligarchs and Saudi oligarchs and oligarchs of any
Speaker 4: other stripe around the world like to first order their oligarchs,
Speaker 4: and they can be compelled or coerced by their respective
Speaker 4: flags to you know, maybe seeing the patriotic tune when
Speaker 4: push comes to show. But ultimately their their actions in
Speaker 4: the global system are the fact that they control massive
Speaker 4: amounts of capital and their first order, you know, motivation
Speaker 4: is to protect that capital and influence whatever jurisdiction that
Speaker 4: capital's in to protect their interests. And so that that
Speaker 4: that can involve, you know, corrupting Western democracies, it can involve,
Speaker 4: you know, doing other things in the global system that
Speaker 4: that oftentimes don't directly align with you know, the state
Speaker 4: capital and their geopolitical progress. But that that's like a
Speaker 4: new wrinkle between the basic structure of kind of money
Speaker 4: production and commodities. And now you just have a huge
Speaker 4: amount of private wealth and it's and it now has
Speaker 4: a lot of influence, but it.
Speaker 1: Kind of fits within these three roles that you said, credit, money, commodities,
Speaker 1: or production, and so most of that wealth that these
Speaker 1: ol of our control would actually fit under one of
Speaker 1: those buckets, under commodities or under production to your point, right,
Speaker 1: if Chinese holigarchs it fits under production, Russian holigarcs it
Speaker 1: fits under commodities kind of a thing, right, so you
Speaker 1: could still and then US holigarks it fits under finance exactly.
Speaker 2: Yeah.
Speaker 4: And I think one of the tensions you're seeing is, like,
Speaker 4: just to take one example, as the Chinese, like the
Speaker 4: US China relationship and the political economy inside the United
Speaker 4: States of what sort of stance the United States should
Speaker 4: take towards China, as you know, their growing strategic challenge
Speaker 4: is becoming more acute, and from like the perspective of
Speaker 4: those inside the Washington d C that represent the Defense Department,
Speaker 4: the intelligence community, kind of the political collaboratus, the Treasury Department.
Speaker 4: You know, it's all about preparing to you know, meet
Speaker 4: this threat. It's it's more of an antagonistic aggressive posture.
Speaker 4: Technology controls, export controls, et cetera. If you're a venture
Speaker 4: capital or private equity or Wall Street manager. Right, your
Speaker 4: your first order concern is I gotta I want to
Speaker 4: keep you know, growing my my P and L. I
Speaker 4: want to keep selling into this market. And you don't
Speaker 4: necessarily want to break this trade relationship. You don't want
Speaker 4: to break the bioloedical capital flows you're getting. You've been
Speaker 4: you've been riding on this hog of globalization and Chinese
Speaker 4: sort of asset recycling into Chinese surplus recycling into Western
Speaker 4: assets that has really benefited uh, you.
Speaker 2: Know, essentially Silicon Valley and Wall Street.
Speaker 4: And now we're seeing this, you know, this tension play
Speaker 4: out between the interests of that part of the political
Speaker 4: economy the United States and the national security interests coming
Speaker 4: out of d C. And that that is a that
Speaker 4: the version of that argument you're seeing also take place
Speaker 4: in say Germany between you know, the folks inside Germany
Speaker 4: to have a really strong interest in you know, trade
Speaker 4: with China and those that you know are trying to
Speaker 4: be pulled by the West into a more antagonistic relationship.
Speaker 2: Yeah.
Speaker 3: Boy, what a tangled web that is.
Speaker 1: So it's sort of like everybody kind of operated in
Speaker 1: this this three parts of the triangle and this symbiotic relationship,
Speaker 1: and now it's gotten to the point where it's like, well,
Speaker 1: now each person sort of has their own interests or
Speaker 1: maybe wants to move a little bit further up, like China,
Speaker 1: maybe we want a little bit more than just being
Speaker 1: the manufacturing hub of the world.
Speaker 3: Maybe we want to be the superpower.
Speaker 1: And so now you sort of have these these these
Speaker 1: different competing people wanting to get more. Unfortunately, then that
Speaker 1: starts to upset the balance of power, and then everybody
Speaker 1: starts scrambling and then the whole thing kind of falls apart.
Speaker 3: I guess is kind of where we're at.
Speaker 2: So we have.
Speaker 1: To this kind of increased pressure I went through. I
Speaker 1: actually covered this on a recent video, and really maybe
Speaker 1: it goes back to like Trump really starting kind of
Speaker 1: this this trade war with China, the tariffs things like that,
Speaker 1: starting to slap sanctions on their technologies, specifically like going
Speaker 1: after Huawei kind of a.
Speaker 3: Thing like that.
Speaker 1: And then it really acceleerates with Biden putting down this
Speaker 1: chip mandate where we can no longer supply any parts
Speaker 1: or even production equipment to China for like level two
Speaker 1: three chips, things like that, and now we're seeing China
Speaker 1: retaliate saying that they're going to hold back gallium and gypsum,
Speaker 1: I think, two different kind of rare earth elements that
Speaker 1: we need. So now we're seeing the war escalate, and
Speaker 1: of course it does. That's how things work, right, they
Speaker 1: always escalate. But it seems like maybe it was made
Speaker 1: abundantly clear after the pandemic that, like, because the US
Speaker 1: has really outsourced so much production, we rely so much
Speaker 1: on China, we really can't decouple, and so we start
Speaker 1: getting to this kind of retaliate retaliatory war.
Speaker 3: But like where does that lead? I mean, it's kind
Speaker 3: of like mutually sure destruction almost, isn't it.
Speaker 4: Yes, And I think that's the tit for tat that
Speaker 4: we've been in Bark that we've been going through really
Speaker 4: since Yeah, that October seventh Export Control Order that the
Speaker 4: White House signed restricting China's access to leaning edge semiconductor
Speaker 4: production equipment as well as sort of the actual sort
Speaker 4: of Western talent, and they try to make that like
Speaker 4: a multilateral restriction.
Speaker 2: So originally it was a.
Speaker 4: US but then really trying to get the other key
Speaker 4: players in the global semi semi director of supply chain,
Speaker 4: principally the Dutch of South Koreans and the Japanese to
Speaker 4: come on board. And now that they have kind of
Speaker 4: been able to get at least those key players to
Speaker 4: tack in the direction of the United States with sort
Speaker 4: of these plur these plurilateral multi latter export controls. China has,
Speaker 4: you know, trying is trying to retaliate, right, and because
Speaker 4: they're finamentaling the weak position relative to that dimension of
Speaker 4: the living technology, they're retalitying on their advantage, which is
Speaker 4: on the raw commodity inputs to that to that high
Speaker 4: technology supply chain. So so gallium and germanium is where
Speaker 4: you know, to two critical commodity inputs that they have
Speaker 4: the like the almost like the monopoly control over. And
Speaker 4: it was time just before Secretary Yellen is over there
Speaker 4: now for a visit. So I think a lot of
Speaker 4: this is about signaling, it's about tit for tat, it's
Speaker 4: about posturing in this negotiation. You know, six months ago
Speaker 4: people were really pessimistic on the direction of travel of
Speaker 4: the US Chinel relationship. It was ironically, it was the
Speaker 4: balloon incident that was like the thing that really knocked everything.
Speaker 2: Off off the rails.
Speaker 4: Secretary Blinking was supposed to go there and it kind
Speaker 4: of helped smooth over at least some of the fallout
Speaker 4: from the chip controls, but that didn't happen.
Speaker 2: Instead, just things got much worse.
Speaker 4: And I think there's a lot of back channeling, a
Speaker 4: lot of like desire on both parties to at least
Speaker 4: structurally shift the relationship up a bit now. I think
Speaker 4: stepping back, everyone has interest in especially China because of
Speaker 4: their economic sort of weakness right now, is not to
Speaker 4: like aggravate things, and I think everyone recognizes that when
Speaker 4: we shift into twenty twenty four presdential campaign season that
Speaker 4: the ability to any to do any sort of positive
Speaker 4: you know, biolaterals anything is going to be impossible. So
Speaker 4: it's like, get the relationship as back to an even
Speaker 4: keel as possible this year, knowing that it's likely going
Speaker 4: to deteriorate again next year.
Speaker 2: That's I think that's like the tactical stuff.
Speaker 4: I think in general, there's a big debate happening about
Speaker 4: whether fundamentally the relationship is like inevitably confrontational, right that
Speaker 4: there's just the structural imperatives that are driving China's rise,
Speaker 4: just the United States can't accommodate them into the global system.
Speaker 4: It's like we have to make some fundamental trade offs
Speaker 4: to the way we run the world order in order
Speaker 4: to accommodate China's objectives.
Speaker 2: Like, you know, we can we can negotiate on any.
Speaker 4: Particular issue, but fundamentally they want to have their own
Speaker 4: geo economic sphere of influence. They don't want to feel
Speaker 4: sort of hemmed in in the first island chain and
Speaker 4: subject to the sort of coursive power of the US
Speaker 4: monetary and military alliance system and the security architecture in
Speaker 4: the Western Pacific. Like they fundamentally want to change that.
Speaker 4: They want to, you know, like peel us back from
Speaker 4: the Western Pacific, and we don't want that to happen.
Speaker 4: So we can have these sort of you know, we
Speaker 4: don't at any given tactical moment, like no one wants
Speaker 4: everything to blow up. But the relationship is a sort
Speaker 4: of seems to be in a like a structural downtrend.
Speaker 1: Because they want to rise and we want to hold
Speaker 1: them back. And then those two things aren't those things
Speaker 1: don't don't work together. They want to rise, we want
Speaker 1: to hold them back, and at some point one of
Speaker 1: somebody has to give.
Speaker 4: It is it's it's you know, there's a mentality that's
Speaker 4: i think on both sides of the Pacific that's somewhat
Speaker 4: zero sum, and whether it's objectively true or not somewhat irrelevant.
Speaker 4: If everyone thinks that zero sum, then that's what's going
Speaker 4: to drive the dynamic, and especially on high technology. So
Speaker 4: that's the thing that's made this i think more complicated
Speaker 4: than just like territorial disputes or unification of Taiwan, is
Speaker 4: that we have a perception among every other, every major
Speaker 4: player in the global system that if you can't keep
Speaker 4: up with the frontier of emergent technology, that you'll fundamentally,
Speaker 4: like forever fall behind as a global power. And so
Speaker 4: China is facing this like existential challenge. They see their
Speaker 4: demographic situation in the next ten years really declining. They see,
Speaker 4: you know, you know, they have dominance in global trade,
Speaker 4: but they're trying to move up the value chain very
Speaker 4: very quickly, and they're doing it from a position of
Speaker 4: relative weakness, right They're trying to catch up. And now
Speaker 4: the hedgemon is sort of relatedly turned its attention to
Speaker 4: this rising challenger and is now pulling out all the
Speaker 4: stops to try to keep its relative advantage as big
Speaker 4: as possible and is willing to do things that from
Speaker 4: trans perspective sort of border on you know, economic war, right,
Speaker 4: Like we're just we're just going to blanket, you know,
Speaker 4: cut off your access to like, for example, like leading
Speaker 4: Edge GPUs, which if everyone thinks AI is going to
Speaker 4: be like the critical kind of general purpose technology the
Speaker 4: next ten to twenty x years, they're trying to can't
Speaker 4: get access to that technology. They're sort of fundamentally restricted
Speaker 4: from developing their economy, and they view that as potentially
Speaker 4: existential threat to them. Right the whole premise of the
Speaker 4: party's legitimacy and stabilities, they continue to deliver economic growth,
Speaker 4: you know, year after year.
Speaker 2: You know that's the that was the trade off.
Speaker 4: Essentially, you have one party rule, but we give you
Speaker 4: you know, six percent GDP growth every year and you know,
Speaker 4: rising liber standards and house prices they keep going up.
Speaker 1: How effective will the US be at at kneecapping them
Speaker 1: with the technology? I mean a lot of people would
Speaker 1: just say, well, they'll just develop their own chips. They
Speaker 1: don't need you know, they don't need us. They'll just
Speaker 1: develop their own ships. The already have, they already have
Speaker 1: high tech chips et cetera. So how effective are that
Speaker 1: and how hard would it be in your opinion for
Speaker 1: China to try to catch up without the US helping
Speaker 1: or even even while the US is trying to hold
Speaker 1: them back.
Speaker 4: It's it's I mean, this is like the trillion dollar question.
Speaker 4: I think it's a function of time. Like in the
Speaker 4: near term, say three to five years, it there's really
Speaker 4: little chance that China can, for example, recreate what the
Speaker 4: Dutch lithography producer ASML has with their extreme ultraviolet lithography equipment.
Speaker 4: That is, you know, that was like a thirty year
Speaker 4: R and D project by you know, a multi multi
Speaker 4: billion dollar firm that had like access to the most
Speaker 4: advanced German optics and you know, just it was like
Speaker 4: it was like it's the premier technology of human civilization.
Speaker 4: Like it's the most advanced thing the human beings have
Speaker 4: ever created. China is very smart. China has a lot
Speaker 4: of has a lot a lot of capability. They're putting
Speaker 4: one hundred plus billion dollars a year into this, so
Speaker 4: they could as a moonshot try to get there. I
Speaker 4: think that's their objective. It's very hard to just like
Speaker 4: semiconductors is sort of like the like the quintessential global product, right,
Speaker 4: like no single country.
Speaker 3: Oil, right oil?
Speaker 4: And one critical distinction with oil is like you can
Speaker 4: just pump a way out of the ground. You don't
Speaker 4: need twenty trade partners each producing a very specialized component
Speaker 4: and in a highly configured, complex supply chain to generate
Speaker 4: you know, a semiconductor that goes into your iPhone. Like
Speaker 4: That's what the global system has has enabled is cross
Speaker 4: border trade specialization.
Speaker 2: Et cetera.
Speaker 4: And China was a part of that integrated, very complex
Speaker 4: supply chain. So that system breaks down, it's more likely
Speaker 4: that no one gets semiconductor then trying to get some conductors.
Speaker 4: So it's more a function of does instead of trying
Speaker 4: to catching up, do they just try to spoil the fun?
Speaker 4: Right Like if and this is the risk is that
Speaker 4: if kinda feels that they can never get access to
Speaker 4: the technological frontier, and that every year that goes by
Speaker 4: means that the advantage of the West is going to,
Speaker 4: you know, steadily increase, and then it maybe in a
Speaker 4: few years that technological advantage will translate into a more
Speaker 4: material military advantage. Then China's ambitions to unify with Taiwan
Speaker 4: and carve out a larger geo economics sphere of influence
Speaker 4: for themselves might be forever foreclosed, and so this might
Speaker 4: actually precipitate more aggressive action in the near term to
Speaker 4: just spoil the party.
Speaker 3: Well, if I can't have it, nobody can have it
Speaker 3: kind of a thing.
Speaker 4: Yeah, yeah, and say, okay, like, if you're going to
Speaker 4: try to block us from access to this technology, we'll
Speaker 4: just make sure no one can have it.
Speaker 3: Yeah, Which, what about what do you think?
Speaker 1: I mean, this is more of a political maybe even
Speaker 1: philosophical question, but you know, China being a communist country
Speaker 1: and the amount of control they have, you know, I
Speaker 1: would believe that that limits the creativity and uh motivations
Speaker 1: that and desires that the people have. And it seems
Speaker 1: like maybe that's one reason why we still have so
Speaker 1: much creativity. We have so much of this new development
Speaker 1: happening in the United States in you know, a free country.
Speaker 1: So even if China puts all the money towards it,
Speaker 1: do they have the people necessary, does the does their culture,
Speaker 1: does their political structure cultivate that type of creativity to
Speaker 1: develop those things?
Speaker 4: It's interesting, I mean, that's a yeah, it feels like
Speaker 4: a cultural question.
Speaker 3: You kind of have to political yeah.
Speaker 4: Political question because I mean, for example, there's one study
Speaker 4: I forget who did it. It was a few months
Speaker 4: ago where they looked at I forget the exact deals,
Speaker 4: but they're looking at like patents. So if you look
Speaker 4: by patents, uh, like in high technology China, especially like
Speaker 4: an AI for example, or quantum information sciences, I feel
Speaker 4: like like the production of new ideas, which patents might represent,
Speaker 4: China has actually climbed pretty dramatically to the top ranks
Speaker 4: of the global system. Where they have struggled is in
Speaker 4: translating say those raw sort of technology insights or ground
Speaker 4: or sort of scientific results into commercial products because they
Speaker 4: don't have like a as much of an open free
Speaker 4: market and the domestic system they don't, you know, especially
Speaker 4: with posts the jackmaw, you know, interrogation. Like entrepreneurship has
Speaker 4: a cap right, Like there's a you know, in the
Speaker 4: United States, you can start you can found a startup,
Speaker 4: become a unicorn naked billion dollars in a few years.
Speaker 4: In China, like you're gonna quickly hit into a political
Speaker 4: wall if you if you ever get if you ever
Speaker 4: get that successful, and so that that does kind of
Speaker 4: impose a fundamental constraint on their innovation capacity as a society.
Speaker 4: Potentially where they can generate a lot of state directed
Speaker 4: R and D, they can generate a lot of you know,
Speaker 4: research labs to crank out like all the high end
Speaker 4: optical blah blah blah blah quantum stuff. But turning that
Speaker 4: into like a market you know, delivered product and service
Speaker 4: that can turn to a multi billion dollar business.
Speaker 2: That's the thing. The United States has historically been the.
Speaker 4: Best in the world at problems, yeah, and and commercializing
Speaker 4: those and then and then you know, turning them into
Speaker 4: world leading businesses. And so that is that is an
Speaker 4: interesting challenge. But I mean, China's objectives, at least in
Speaker 4: the near term, may.
Speaker 2: Not be to be Google and Apple of the world.
Speaker 4: It maybe they just need to have enough d F sixteens,
Speaker 4: DF seventeens, d F twenty one's you know, uh frigates.
Speaker 4: You know, they basically just need to build enough missiles
Speaker 4: and have enough satellite capacity to prosecute victorious you know
Speaker 4: operation that this out trying to see, so like they
Speaker 4: might be like structurally hindered from say seizing the commanding
Speaker 4: heights of the Fifth Industrial Revolution or whatever it is
Speaker 4: that they write in their their their party strategy.
Speaker 2: But tactically speaking, that.
Speaker 4: May not prevent them from a from accruing the relevant
Speaker 4: military capacity in the in the near term to displace
Speaker 4: the United States in a tactical conflict scenario. Because while
Speaker 4: we have like a really i say, strong structural advantage,
Speaker 4: cultural advantage when it comes to innovation, capital markets, et cetera,
Speaker 4: like our military capacity or our sort of shipbuilding capacity,
Speaker 4: our defense industrial base, the fact that we're spread around
Speaker 4: the whole global system try to you know, secure global
Speaker 4: trade routes, et cetera, you know, makes us vulnerable potentially,
Speaker 4: especially in the next you know, three to five years
Speaker 4: sort of the acute sort of window of danger where
Speaker 4: the deteriorating sort of US military sort of hard power
Speaker 4: capacity you know, might run up against China is really
Speaker 4: aggressive ramping up and building ships, missiles, et cetera.
Speaker 2: So that's that's the danger zone.
Speaker 4: Is if we get to this period where you know,
Speaker 4: krying of feels they have to go for it before
Speaker 4: the window closes.
Speaker 3: Yeah, uh, pulling on that thread a little bit more.
Speaker 1: And and I guess if if we really frame it
Speaker 1: up with these these these are the two you know,
Speaker 1: these the two big superpowers that are kind of coming
Speaker 1: into conflict.
Speaker 3: I'd asked you about.
Speaker 1: When we had the conversation previously getting under this call
Speaker 1: about you know, i'd read this article talking about these uh,
Speaker 1: these g SIP banks and potentially even like the four
Speaker 1: largest banks and the world bank accounts in the world
Speaker 1: are Chinese owned banks. Trillions of dollars sitting in offshore
Speaker 1: bank accounts, and how really what we've seen with the
Speaker 1: bank runs happen in the United States. We're just triggered
Speaker 1: by people taking their money out of the bank, and
Speaker 1: they just take their money out of one bank and
Speaker 1: put into bank number two. Just push a button, doesn't
Speaker 1: cause that personal problem, but the bank goes down. And
Speaker 1: it basically talked about how like the largest bank of
Speaker 1: the United States being JP Morgan, had like eight hundred
Speaker 1: and sixty million I'm sorry, eight hundred and sixty billion
Speaker 1: dollars on its books or whatever, and they're like, these
Speaker 1: accounts have trillions of dollars and all I gotta do
Speaker 1: is just transfer from account eight account B.
Speaker 3: And just whack them all. Just bank drop, but drop
Speaker 3: up rup drup. I understand that.
Speaker 1: I mean, as big as that is we also have
Speaker 1: other oligarchs, and we have the whole euro dollar system
Speaker 1: potentially as well. But it seems like very easily there
Speaker 1: could be a financial attack as well, which of course
Speaker 1: back to mutually deserved destruction. I mean they're sitting on
Speaker 1: all these treasuries. I mean they don't want to ruin
Speaker 1: the financial system either, but I guess they have that weapon.
Speaker 1: Do you see that as something that's a that's a
Speaker 1: legit threat out there?
Speaker 4: I do, And it gets it gets very complicated because
Speaker 4: like any other conflict scenario, right, there's never there's never
Speaker 4: like a zero cost attack.
Speaker 2: Right.
Speaker 4: Every attack that you know, someone decides to execute is
Speaker 4: going to come with some cost. Right, So there's just
Speaker 4: like you know, a military attack, you might lose you know,
Speaker 4: a bunch of people of your forces, so you need
Speaker 4: to apply But that doesn't mean they're not going to
Speaker 4: launch the attack, right, it's whether it's strategically justified orhere
Speaker 4: they think they have a high chance of like strategic victory.
Speaker 4: So I think you need to apply the same logic
Speaker 4: to sort of financial warfare as you do to you know,
Speaker 4: actual warfare. And I think you need to analyze the
Speaker 4: position that you know that the Chinese government. In Chinese
Speaker 4: say private sector proxies have accrued over the past twenty
Speaker 4: years as the sort of globalized system has like really
Speaker 4: accelerated the capital recycling from Chinese surpluses into Western assets, right,
Speaker 4: trillions of dollars that Chinese entities have a crude like
Speaker 4: the basic recycling mechanism have kind of gone through like
Speaker 4: two routes. There's like the official route of you know,
Speaker 4: government sector dollars surpluses foreign exchange reserves going into dollar
Speaker 4: based assets, principally US treasury securities held on the books
Speaker 4: of either you know, the Central Bank safe like the
Speaker 4: State Administration of Foreign Exchange.
Speaker 2: Which is the PBOC Sovereign Wealth Fund.
Speaker 4: There's a whole book being written that was just written
Speaker 4: by someone from the Council on Formulations that analyzes kind
Speaker 4: of this network of sovereign wealth funds or even what
Speaker 4: they called sovereign leverage funds that China has created to
Speaker 4: redirect those dollars surpluses away from say dollar treasury securities
Speaker 4: into like the dealt road mission right to try to
Speaker 4: secure strategic influence in the global South, buy up assets, ports,
Speaker 4: et cetera. And that was that's kind of like on
Speaker 4: the official side, right, these are official actors recycling surpluses
Speaker 4: and you know, getting strategic influence. This more like covert
Speaker 4: recycling mechanism is probably potentially much more dangerous, which is
Speaker 4: trillions of dollars that go through sort of a hop
Speaker 4: of of of shell companies, right a Hong Kong LLC
Speaker 4: to a Cayman Allen's LLC or Luxembourg LLC, a multi LC,
Speaker 4: et cetera, that ends up investing in a US hedge fund,
Speaker 4: a pension fund, an I p O, et cetera.
Speaker 2: Just a regularistate equity.
Speaker 4: You know, accruing large stakes and with large stakes in
Speaker 4: Western assets comes influence. Right, So before you press the
Speaker 4: sell button, which is like the nuclear button, you actually
Speaker 4: have a lot of influence you can get. Maybe you
Speaker 4: get a seat on the board of that public or
Speaker 4: private company. Maybe that buys you a seat at the
Speaker 4: fundraising dinner for that politician.
Speaker 2: Maybe it allows you to.
Speaker 4: Do things with money in our political system that allows
Speaker 4: you to exert lots of lots of influence and Chinese entities,
Speaker 4: whether it's oligarchs or other affiliated group sort of United
Speaker 4: frontwork department, you say, like agency of influence have leveraged
Speaker 4: that money and capital to influence Western democracies and sort
Speaker 4: of corrupt our processes. That that does give them a
Speaker 4: position potentially of having you know, I think that that
Speaker 4: particular article you talk about kind of the stream case
Speaker 4: of that influence being well, a lot of these Western
Speaker 4: fans stitutions have pretty thin sort of sort of cover
Speaker 4: on their on their outflows. So if ten billion dollars
Speaker 4: of depositors decided to leave one day, they have got
Speaker 4: to cover that by selling assets because they're allowed to
Speaker 4: hold like very little liquid capital. And that is what
Speaker 4: we saw this look on Valley Bank right where basically
Speaker 4: within a day or two, like forty billion dollars of
Speaker 4: depositors just left and that basically killed the bank. The
Speaker 4: FDIC had to come in and make those depositors whole.
Speaker 4: And if I think they even made that public that
Speaker 4: some of the largest depositors were Chinese investors, were Chinese
Speaker 4: entities that had billions of dollars in deposits that were
Speaker 4: effectively backed up by the FDIC, and that is and
Speaker 4: that was like official, like it was a Chinese company.
Speaker 4: There's you know, probably a lot more that's not like
Speaker 4: obviously a Chinese company. That's just an entity that if
Speaker 4: you traced all those hops back, would probably be tied to,
Speaker 4: you know, some some entity that has you know, that
Speaker 4: is in control of those Chinese surpluses that have been
Speaker 4: routed in the off short dollar system. And that is
Speaker 4: a it's an underappreciated, acute kind of vulnerability in our
Speaker 4: in our in our financial system that we've just sort
Speaker 4: of exposed ourselves to by virtue of the do the
Speaker 4: status of the dollar being global reserve currency, by being
Speaker 4: the economy that has to run these structural deficits that
Speaker 4: we have to absorb global surpluses. We have to sell
Speaker 4: off at you know, our our our desirable assets, our
Speaker 4: real estate, our equities, et cetera, to foreign surpluses, and
Speaker 4: those are principally now our gipolitic leavissriies, right, it is.
Speaker 4: It is the Russians, the Chinese, it's the it's the GCC,
Speaker 4: it's sort of the Sanghai Cooperation Organization sort of block
Speaker 4: that has those those dollar surpluses, that controls most of
Speaker 4: those Western assets. That's not a very it's not a
Speaker 4: position of relative strength to go into a financial and
Speaker 4: economic war with those individuals. I think it's a I
Speaker 4: think it's a problem.
Speaker 3: Yeah, yeah, big problem.
Speaker 1: What do you think FED now, the launch of fed
Speaker 1: now will help that or will that make it worse?
Speaker 4: Then it was a little bit different. I think what
Speaker 4: what was maybe a stopgap measure was the BTFP, the
Speaker 4: bank term funding program that they put in after the
Speaker 4: that initial panic and you had credits week going down.
Speaker 1: So I think I just mean, like, if it's able
Speaker 1: to move money faster, right, because that's what the FED
Speaker 1: now system is, allows money to move between banks faster.
Speaker 1: So if the Chinese did want to move money from
Speaker 1: one bank to the next to cause bank runs, does
Speaker 1: that speed that process up? Or does FED now have
Speaker 1: like gates put in where they could say, hey, I
Speaker 1: saw you know you can't move more than one hundred
Speaker 1: thousand at a time, so we you know, we don't
Speaker 1: allow them to move ten billion at a time kind
Speaker 1: of thing.
Speaker 4: I mean, I know what other funningly changes because bank
Speaker 4: runs are fundamentally driven by driven by psychology, less by
Speaker 4: like the plumbing. Right, because if everyone shows up tomorrow
Speaker 4: and wants to take their money.
Speaker 1: Out, right, But we're not talking about everybody showing up.
Speaker 1: We're talking about we're talking about you know, some sort
Speaker 1: of a Chinese a Chinese arm saying, hey, just move
Speaker 1: a hundred billion from this acount that account, and now
Speaker 1: that bank just shuts down.
Speaker 4: It could make it easier to have like yeah, like
Speaker 4: if you did it a Friday, it doesn't happen until Monday,
Speaker 4: but now it can happen pretty quickly. I think it
Speaker 4: maybe on the margin, it helps, you know, anytime that
Speaker 4: makes like deposits move more efficiently out of the bank.
Speaker 4: If those banks are fundamentally fragile, that raises this risk
Speaker 4: and then someone can you know, if someone has mal
Speaker 4: intent and has the capital and the willingness to deploy it.
Speaker 4: You know, maybe it makes it, you know, on the margin,
Speaker 4: more vulnerable.
Speaker 2: I think the Fed's.
Speaker 4: Actions were to try to mitigate that because the premise
Speaker 4: of this attack isn't just your own deposits. You're trying
Speaker 4: to trigger a bank run. You're trying to trigger like
Speaker 4: multiples of your own deposits to flee at the same time,
Speaker 4: because you probably don't have enough on your own to.
Speaker 3: Just do these Chinese accounts.
Speaker 2: Do they may?
Speaker 4: But maybe, I mean, but that's also a lot of
Speaker 4: your own equity to put it, like you'd want to
Speaker 4: get a multiplier effect. Right, if you had a ten
Speaker 4: billion dollars, you want that to cause fifty billion dollars
Speaker 4: to move out, right, Just you want that's what you
Speaker 4: would want to You want to have a multiplier on
Speaker 4: your on your effects.
Speaker 1: So a little bit of propaganda and the media and
Speaker 1: then some big transfers.
Speaker 4: Yeah, you want to try to do everything you can
Speaker 4: to amplify your your actions, right, you don't want to
Speaker 4: just be the pure mechanics of of your own your
Speaker 4: own action. You want it to be amplified by its
Speaker 4: effect that everyone else. And so I think, I mean, funnily,
Speaker 4: though this is just a banking system is an issue.
Speaker 4: I mean there's probably similar issues you could you could
Speaker 4: imagine in the shadow banking system that aren't aren't as
Speaker 4: like obvious. I think the fed's actions is, funnily, is
Speaker 4: just to like agree to bail everyone out if need be, right,
Speaker 4: Like that's their only hope. Like that's was the BTFB.
Speaker 4: That was what the swap lines were about for credit
Speaker 4: sweet Like it was okay, like yes, a few may die,
Speaker 4: but we're going to stand here and we're going to
Speaker 4: tell you, like wherever you need it we'll give you
Speaker 4: dollars if you need it, right, and that that potentially
Speaker 4: mitigates this attack because then it says, okay, you can
Speaker 4: take your ten billion dollars out, but if that bank
Speaker 4: ever gets in trouble because of that, we're gonna bail
Speaker 4: it out. We're not gonna let it fail. Yeah, and
Speaker 4: you know that's what we did. Now we have ETFp.
Speaker 4: Now you know swap lines are and.
Speaker 1: There's no reason for consumers to pull their money up
Speaker 1: because we're going to backstop all that money as well.
Speaker 3: So yeah, my hasshole with transferring money, we just will
Speaker 3: take care of it.
Speaker 4: Yeah, So that that attack may may have may have
Speaker 4: particular mechanism, but at the cost of now changing kind
Speaker 4: of the structure of our deposits.
Speaker 1: Do you think do you think from an adversarial now
Speaker 1: that we've sort of framed this up this way, do
Speaker 1: you think Jerome Powell's actions might be potentially to bring
Speaker 1: these olive arch gesib Euro dollar markets come to heal
Speaker 1: come back to daddy.
Speaker 3: So to speak.
Speaker 1: Maybe they've gotten so big, uh and uh if he
Speaker 1: raises interest rates you know, five x he it's obviously
Speaker 1: works to your point in multiples.
Speaker 3: So they're all levered up. It works to them multiples
Speaker 3: as well.
Speaker 1: And so maybe what Jerome Powell is doing, you know,
Speaker 1: as a as a bitcoiner, what we always hear is
Speaker 1: that they will never give control over money because they
Speaker 1: you know, they don't they want to let bigoin to
Speaker 1: succeed because they don't want to give up control over money. Well,
Speaker 1: who doesn't want to give up control over money?
Speaker 3: Does? Does Jamie Diamond?
Speaker 2: J Powell?
Speaker 3: The New York Fed?
Speaker 1: Do they want to give up control over the dollar
Speaker 1: to the ECB, the Euro, the PBOC, be whatever.
Speaker 3: So like they're all they all want to gain control.
Speaker 1: And so anyway back to the question, Uh, do you
Speaker 1: think that potentially what Jerome Powell's doing is really trying
Speaker 1: to secure the dollar for dollars sake, not really the
Speaker 1: US economy, but the dollar, and by raising rates as fast,
Speaker 1: it's sort of draining a lot of that liquidity or
Speaker 1: that leverage those accounts have.
Speaker 4: I mean, he's probably got multiple motives, and it's whether
Speaker 4: it's you know him as an individual, or whether it's
Speaker 4: like the structural incentives of the institution.
Speaker 2: Those might be slightly different.
Speaker 4: I think one very one like that's like a very
Speaker 4: broadcread like one case study maybe to examine that could
Speaker 4: that's like maybe an indicator of of this is this
Speaker 4: shift to sofer from liber right. Because the lesson of
Speaker 4: the financial crisis was that even when things were going
Speaker 4: pear shaped and the FED was aggressively trying to cut
Speaker 4: the FED funds rate, liber was stubbornly high. And because
Speaker 4: most of like US flowvoting rates were premised on liber
Speaker 4: like most of the rates that actually inform economic decision making,
Speaker 4: like credit cards and household loans and car loans were
Speaker 4: premised on liber that even though the FED was trying
Speaker 4: to cut rates, LIBR was stuck high because it was
Speaker 4: controlled in London and it was controlled by consortium of
Speaker 4: bankers that were just texting each other right like that
Speaker 4: we could control and it took a political intervention to
Speaker 4: basically by the FED to talk to the politicians essentially
Speaker 4: running in London that talked to the Bank of England,
Speaker 4: that talked to the Bank that said you have to
Speaker 4: cut LIBR. Now, I think I think the number two
Speaker 4: at the time of the Bank of England, his name
Speaker 4: is Paul Tucker. He recently came out and told this
Speaker 4: this anecdote basically where you know, the phones are ringing
Speaker 4: off the hook from from from DC and New York
Speaker 4: FED saying like you have to like bring the rates down.
Speaker 4: So this was that was a that's an example of
Speaker 4: where they now they felt that, oh, like US interest
Speaker 4: rate policy transmission was a function of some offshore foreign
Speaker 4: banking cartel that we don't control, Like, we're not going
Speaker 4: to have that. We're not gonna, we're not gonna, we're
Speaker 4: not going to stand by, right, so they're going to
Speaker 4: shit everything to sofer which.
Speaker 3: Lead someone else set the price of money. We're gonna
Speaker 3: do it, and we're going.
Speaker 4: To control it, and we're gonna have the ability to
Speaker 4: influence the you know, the full money markets much more
Speaker 4: tightly from DC and from the New York FED. And
Speaker 4: that's like now a strategic comparative. And I think COVID
Speaker 4: accelerated this as well. And so this is where I
Speaker 4: think just one example, I think the zoom out there's
Speaker 4: like lots of people have told the complex story of
Speaker 4: the euro dollar system and the FED sort of love
Speaker 4: hate relationship with it right over different periods of time
Speaker 4: where they felt maybe in certain historical moments it was
Speaker 4: strategic benefit to sort of let the European banks kind
Speaker 4: of go crazy and do what they wanted to do,
Speaker 4: because that would help internationalize a dollar.
Speaker 2: System, create more liquidity for usher sort of dollar bonds.
Speaker 4: This would you know, provide more liquidity to say, for
Speaker 4: the Saudis to invest in you know, et cetera. That
Speaker 4: this would all sort of be a geopolitical advantage to us.
Speaker 4: But like everything else, it also gets to certain moments
Speaker 4: where oh, they would they go too far, and now
Speaker 4: we have to bail them out. And now we're bailing
Speaker 4: out European banks, just like we did in two thousand
Speaker 4: and eight, where we had to spend way more money
Speaker 4: bailing out European banks.
Speaker 2: Than any US bank.
Speaker 4: And you know, geopolitically, when you're when you're in front
Speaker 4: of you mode, maybe you bail out your friends, but
Speaker 4: you know, us in the Europeans, we're kind of getting
Speaker 4: a little bit frosty with you know, data regulations and
Speaker 4: you know, you know, investment subsidies.
Speaker 2: On renewable energy liqunatural gas, you know.
Speaker 4: Policy about NATO VERSUS Russia, trying to like, you know,
Speaker 4: it's not as easy as a simple relationship. Just you're
Speaker 4: in the dollar orbit and therefore we're going to bail
Speaker 4: you out. It does get I mean, the funnel like
Speaker 4: point is that the money system is funnelly geopolitical.
Speaker 3: Right.
Speaker 4: People can think that it's just you know, it's just
Speaker 4: the neutral, technocratic administration of the economy, but it is.
Speaker 2: It is ultimately a geopolitical.
Speaker 1: The fact that they would like this euro dollar market
Speaker 1: to grow just so they continue to push the dollar,
Speaker 1: you know, dollar market, dollar markets across the globe. Then
Speaker 1: if you look at like US dollar back stable coins,
Speaker 1: I mean, isn't that effectively a similar thing where the
Speaker 1: US dollar has really grown across the globe through stable coins,
Speaker 1: specifically in you know, areas like Africa, et cetera, Central America.
Speaker 3: But yet the administration seems to be very unfriendly to
Speaker 3: stable coins.
Speaker 1: And do you think that's more of like Biden admin
Speaker 1: with a Warren Gensler And that's different than the interest
Speaker 1: that might Jerome Powell and the FED have.
Speaker 2: Yeah, it is.
Speaker 4: It is a really interesting emerging policy area, and I
Speaker 4: think a lot of it comes down to fundamental ignorance,
Speaker 4: Like it's it's relatively new, and the DC policy apparatus
Speaker 4: and bureaucratic machinery just is not quite fully up to
Speaker 4: speed and all the sort of future developments here. But
Speaker 4: I think it's also prettic on the fact that, like
Speaker 4: the legacy development of those standa coins was mainly to
Speaker 4: help you know, Chinese evade capital controls, like that's you know,
Speaker 4: like that's.
Speaker 1: What it was for, right, But and so that was
Speaker 1: where I know, if that's what it was for, it
Speaker 1: was because that's where I wanted to try cryptocurrencies and
Speaker 1: couldn't get dollars onto the platform.
Speaker 4: So they may have I mean yeah, I mean most
Speaker 4: mostly jurisdictions give you onramps and off ramps, except for China,
Speaker 4: like very hard to.
Speaker 1: Get not in twenty sixteen, twenty seventeen, there weren't really
Speaker 1: on an off ramps, not to tree cryptocurrencies. I mean
Speaker 1: you could go buy bitcoin and coinbase and then transferred
Speaker 1: over to one of these crypto exchanges, but there was
Speaker 1: no dollars on them, right.
Speaker 4: No, I mean this is why the dollar base stable
Speaker 4: coins were a great invention, right they met a market need.
Speaker 4: I think it was a good or bad thing of
Speaker 4: just saying like there's a large amount of liquidity that
Speaker 4: was pent, that was trapped, and this was like you know,
Speaker 4: like relatively the easiest way to get access to these markets,
Speaker 4: and so that's how it incubuated. But a lot of
Speaker 4: like so this is where the US government's kind of
Speaker 4: approached to dollar based table coins. I think it is
Speaker 4: going through a little bit of a transformation, where originally
Speaker 4: it was like one of suspicion because all the people
Speaker 4: inside of the government that had like been tapped with
Speaker 4: like the cryptocurrency portfolio were all from like law enforcement
Speaker 4: intelligence community, and it was all through the lens of
Speaker 4: sanctions evasion or going after dark web markets, you know,
Speaker 4: so like their mental models all are bad guys are
Speaker 4: doing bad things with this thing, Therefore this thing is bad.
Speaker 4: I think only recently has there been like a growing
Speaker 4: recognition of actually, there's a lot more good people doing
Speaker 4: good things with this thing then the bad people doing
Speaker 4: bad things with this thing, and so maybe you should
Speaker 4: reappraise like your net evaluation of the moral balance of
Speaker 4: this thing, right, And I think that from a geopolitical perspective,
Speaker 4: the the argument for the positive effects of dollar based
Speaker 4: table coins helping to dollarize parts of the world that
Speaker 4: are very underdollarized now is and help you know, essentially
Speaker 4: spread the sort of the geopolitical influence the dollar. You know,
Speaker 4: that's that's coming on the backs of dollar based table coins, right,
Speaker 4: and if you really the opposition that's interesting to draw
Speaker 4: is between China's ambitions with the digital you want, they
Speaker 4: want to try to bring in more of the global
Speaker 4: South and their geoeconomic kind of trade partners into a
Speaker 4: technology system that they are designing from the ground up. Right,
Speaker 4: So it's the Huawei routers, the CTE surveillance systems, and
Speaker 4: you get the digital currency controls as well, and these
Speaker 4: are cross bridged kind of CBDCs. This is kind of
Speaker 4: like the part of the Sultan the Post and Ar
Speaker 4: thesis about trying to strategy with the CBDCs is to
Speaker 4: create a dollar clearing or sorry, a non dollar clearing
Speaker 4: and settlement system that doesn't try to replicate the offshore
Speaker 4: kind of correspondent banking system that took one hundred years
Speaker 4: for the US to create, but is a sort of
Speaker 4: central bank, essential bank and then critical state banks with
Speaker 4: each other and that are using essentially the same APIs
Speaker 4: that China is developing for their digital yuan to allow
Speaker 4: like atomic settlement of their currencies and their trade over
Speaker 4: this network that doesn't go through New York at all.
Speaker 3: This is the BIS project.
Speaker 4: Mbridge project Mbridge is one kind of really paradigm example
Speaker 4: of this is where you have you know, central banks
Speaker 4: essentially be the key key nodes in a CBDC architecture
Speaker 4: that doesn't need to go through private capital markets. You
Speaker 4: don't need to have an offshore system developed liquidity. You
Speaker 4: just have the central bank be the market maker for
Speaker 4: every for for trade, finance, for for for all, for
Speaker 4: the sort of like in.
Speaker 1: The US, the Internet grew fast because we had wired
Speaker 1: phone lines, and so the internet grew over the wired
Speaker 1: phone lines, and then you saw Africa kind of leapfrog
Speaker 1: pass that directly to wireless. And so a lot of
Speaker 1: people say the dollar can't lose its position because of
Speaker 1: the deep capital markets, because the correspondent banks, you know,
Speaker 1: the swift system, et cetera. But this is like just
Speaker 1: bypassing that whole thing and then starting a whole new system,
Speaker 1: sort of like a leap frog moment.
Speaker 2: Yeah.
Speaker 4: I mean, the Chinese strategy over like many different domains
Speaker 4: is kind of a block build expand right. First, they
Speaker 4: want to block the ability of say a competing system
Speaker 4: like the you know, dollar system to coerce them, so
Speaker 4: they want to be more resistant.
Speaker 2: They want to be more resilient.
Speaker 4: Then they want to build an alternative again, but building
Speaker 4: it doesn't mean it's ready to fully deploy. And that's
Speaker 4: what they're in the stage right now, is they're trying
Speaker 4: to build these alternative systems as like a backup plan,
Speaker 4: but their long term ambition is to expand them to
Speaker 4: now move more liquidity, more settlement to those rails. And
Speaker 4: it's kind of a nonlinear process, right, It's hard to
Speaker 4: get network effects until they're there. It's like, you know,
Speaker 4: Zuckerberg with the threads, right, Like you can imagine like
Speaker 4: many other like social media kind of competitors to Twitter
Speaker 4: just didn't have the social graph. So it's very hard
Speaker 4: to bootstrap a network. You might say the same argument
Speaker 4: for China. China doesn't have the same depth of liquidity
Speaker 4: that the US dollar system has in foreign exchange, YadA, YadA.
Speaker 4: I guess what they do have is a different graph.
Speaker 4: They have the trade relationship, they have the political relationships.
Speaker 4: So their strategy, just like Zuckerberg, is like we have
Speaker 4: the Instagram network, we can sort of bootstrap a social
Speaker 4: social network with the Instagram network. China strategy. We're going
Speaker 4: to boostrap our CBDC network with our trade network. Maybe
Speaker 4: it works, maybe it doesn't, right, No one knows right
Speaker 4: until you try it. But I think it's premature to
Speaker 4: count it out as a legitimate threat.
Speaker 2: And then that's at the state level.
Speaker 4: What's interesting about the bitcoin dollar bay stable coin interplay
Speaker 4: is this is sort of the bottom up right that
Speaker 4: the citizens in those in those countries in the Global South,
Speaker 4: like they don't want the digital do you want or
Speaker 4: the digital naira, right, Like they don't want to just
Speaker 4: you know, offload their.
Speaker 2: Sovereignty to a corrupt government.
Speaker 1: Rights and they've been vocal about that in Nigeria too. Yeah,
Speaker 1: well we take the unira. It's the same thing as
Speaker 1: the regular nira los value.
Speaker 4: And yet like like the US, US like if we
Speaker 4: were like, oh, no, sign up to our surveiled CBDC,
Speaker 4: like what's the actual you know, compelling sort of value proposition, right,
Speaker 4: Whereas if it's like, hey, the US government's actually in
Speaker 4: favor of bitcoin dollar by staple coins, that's a much
Speaker 4: more attractive proposition to a lot of these countries in
Speaker 4: emerging markets. And it just so I also happened to
Speaker 4: be aligned with our value system, which is, hey, we're
Speaker 4: not going to control it. We're not going to control you.
Speaker 4: We're going to let you do what you want to
Speaker 4: do with your money and help you, like live a
Speaker 4: better life and you know, not be expropriated by some
Speaker 4: corrupt central government and.
Speaker 1: Have that dollar token as a bare instrument like like
Speaker 1: cash is supposed to be. And they could rapidly expand.
Speaker 1: It seems to your point in line with original founding
Speaker 1: American ideals. I don't know if if it's the expanding
Speaker 1: the potential future, Yeah, the future ideals. Switch switching gears
Speaker 1: a little bit. I wanted to talk to you, I know,
Speaker 1: we're kind of run out of time. R I want
Speaker 1: to talk about one more topic, and this one's maybe
Speaker 1: fits a little bit onto your wheelhouse, and that's about
Speaker 1: cybersecurity and potentially the threats of a cyber pandemic. And
Speaker 1: so what we've seen is of course continued increasing rhetoric
Speaker 1: about the depending cyber pandemic. It's coming, you know, Klaus Schwab,
Speaker 1: the WEF, they pushed this and it seems to be
Speaker 1: really picking up steam. Whitney Web has done a lot
Speaker 1: of research into this and even just recently we saw
Speaker 1: well both the who wants to control all health for
Speaker 1: the world, the US wants to lay on a sovereignty
Speaker 1: in that manner.
Speaker 3: They say, under a health emergency.
Speaker 1: We can control everything, including the Internet, communications, et cetera.
Speaker 1: Now there's a resolution hasn't been signed, but a resolution
Speaker 1: to now allow the UN to take over the power
Speaker 1: of the.
Speaker 3: United States in case of any emergency.
Speaker 1: And they defined emergencies as numerous things, including currency crisis,
Speaker 1: including information or data crisis would be an emergency that
Speaker 1: would give them power.
Speaker 3: So we see this happening.
Speaker 1: I think it was Klaus Schwab maybe said, you know,
Speaker 1: we will will have a cyber pandemic in the next
Speaker 1: twenty four months or two years or whatever it was
Speaker 1: before twenty nine four. So what's your take on that.
Speaker 1: I know that's maybe a little bit more in your wheelhouse.
Speaker 1: Do you see that increasing rhetoric? Do you think there's
Speaker 1: something coming? Do you think this could be used as
Speaker 1: just another way to kind of move us into whatever
Speaker 1: system they want to digital, like the E system, et cetera.
Speaker 4: Well, I mean, Klaus Schwab is not like a cyber expert.
Speaker 4: I think they put on these Davos panels, and they
Speaker 4: sort of pick the topics jr. And they like they're
Speaker 4: trying to draw attention to themselves, so they create some
Speaker 4: fantastical scenario and it gets everyone in its dizzy. And
Speaker 4: the term cyber pandemic is like like not a technical
Speaker 4: term in like the cybersecurity field, and so it's it's
Speaker 4: a bit.
Speaker 2: Of a it's you know, it's a bit of a
Speaker 2: I don't know, like but I guess.
Speaker 4: The Finnel point is like, our global systems are fundamently
Speaker 4: digital systems, and our modern life relies on these systems
Speaker 4: to function, and like most code is just bad code,
Speaker 4: and if you want to do things and you're relatively capable,
Speaker 4: you can figure out how to like you know, do
Speaker 4: bad things with most digital systems.
Speaker 1: And this is like a year or two ago there
Speaker 1: was that big hack. This's was it Solar winds or yes, I.
Speaker 2: Mean every every year we get one of these big ones.
Speaker 4: So solar wins was a classic supply chain attack where
Speaker 4: the Russians SVR introduced like a vulnerability into a software
Speaker 4: update that went into like hundreds and hundreds of different
Speaker 4: companies as like you know, critical software to like everything.
Speaker 3: Included in the US Treasury. I think right, oh yeah,
Speaker 3: it went it was it.
Speaker 2: Was a huge mess.
Speaker 4: And you know, this is a this is a classic
Speaker 4: example of where, you know, the the opacity of the
Speaker 4: private sector supply chains, like digital supply chains creating software
Speaker 4: can create acute strategic vulnerabilities for countries around the world.
Speaker 4: Like for example, like the not Petia virus that took
Speaker 4: down Marisk was an accident. It was actually meant meant
Speaker 4: to take down Ukraine power grid and it just sort
Speaker 4: of got into the wild, and it was written in
Speaker 4: such a way that it compromised like a pretty general
Speaker 4: piece of industrial software, and Marisk, the global shipping entity,
Speaker 4: basically had almost all their servers worldwide wrecked except for one.
Speaker 3: Just happened to get into the wild.
Speaker 2: Yeah. I mean, well that's these things happen sort of.
Speaker 1: Sort of like when you develop these weapons and tools,
Speaker 1: somehow they just could put to.
Speaker 3: Take it out there. Why do we develop like a
Speaker 3: gain of function study, Like what do we do with that?
Speaker 4: Yeah, sometimes it's unintentionally, but oftentimes it's just just you know, funnily,
Speaker 4: these are like leaky systems, like and they're oftentimes the
Speaker 4: effectiveness of the weapon is designed like you want to
Speaker 4: get into one network, and it's its function is to
Speaker 4: spread throughout that network, and so they're really good at
Speaker 4: spreading to get to the systems you actually want to hit.
Speaker 4: But the malware maybe doesn't know different between like that
Speaker 4: network and another network, and then once it gets there,
Speaker 4: it just goes worldwide.
Speaker 2: And so those are examples just where our systems are
Speaker 2: really vulnerable.
Speaker 4: There's you know, like different thread actors, is like financially
Speaker 4: motivated thread actors that are just trying to like you know,
Speaker 4: extract ransomware ransoms.
Speaker 2: But those aren't necessarily.
Speaker 3: Going to take down or still data or whatever.
Speaker 4: Yeah, they still data, they blackmail you whatever. It's like
Speaker 4: that's a whole business now, Like ransomware as a service
Speaker 4: is like as a as a major thing. And sometimes
Speaker 4: there's inentially moon lighting, uh, you know, intelligence officers they
Speaker 4: are just like deploying their skills for criminal groups to
Speaker 4: make more money or vice versa. It's like often the
Speaker 4: same the real like strategic threats at the level of
Speaker 4: like you know, you know, a catastrophic event, uh is
Speaker 4: like would be mostly a nation state motivated, right, And
Speaker 4: this would usually come in the context of like like
Speaker 4: a tense like war, like like US trying to conflict
Speaker 4: of US now China, see would likely have a cyber component.
Speaker 4: I spent all we spent a lot of time thinking
Speaker 4: about what that looks like, what that manifests. There's a
Speaker 4: huge amount of thought going into the deterrence kind of
Speaker 4: concepts that play out in cyber war, which are very
Speaker 4: different than other forms of kind of you know, established
Speaker 4: military norms, like what's what's appropriate when you're attacking critical infrastructure.
Speaker 4: What's a like a nuisance attack can quickly turn into
Speaker 4: a like strategic attack, and it's often very hard to calibrate. Oh,
Speaker 4: I'm just going to take down you know, one little
Speaker 4: piece of a train system here, but it turns out
Speaker 4: that actually spreads to all the trains in that entire
Speaker 4: Northeast corridor, and now like you know, the economy is
Speaker 4: collapsing because no one can travel, Goods stop flowing, et cetera.
Speaker 4: Or one example, the colonial pipeline critical you know pipeline
Speaker 4: for you know, energy in the Northeast, and it was
Speaker 4: actually you know, an error. Supposedly it was like someone
Speaker 4: just like you know, left their account, but yeah, and
Speaker 4: it got ransomware it and it became like the National
Speaker 4: Security Council's meeting about this thing. Right, Like, this is
Speaker 4: where we are as a civilization, and you know, you
Speaker 4: can you can you can describe a lot of like
Speaker 4: paranoia to like, oh, someone's planning the big event that's
Speaker 4: going to take down everything. What actually scares me more
Speaker 4: is not that there's some secret you know entity that
Speaker 4: wants to you know, spring spring load the big event.
Speaker 4: It's just our systems are so fragile just by design,
Speaker 4: that it doesn't take you know, some big, you know,
Speaker 4: secret group to take it down. It could just fall
Speaker 4: apart by itself. Right, Like the systems we've created are
Speaker 4: just inherently fragile and vulnerable, and they're just constantly being
Speaker 4: duct taped together. Right, a new zero day get gets
Speaker 4: released into the wild, and everyone's rushing to patch this.
Speaker 4: A new supply chaining cact that gets discovered that affects
Speaker 4: half the fortune five hundred, Like this happens like every
Speaker 4: few months, and this is just the way of the world,
Speaker 4: and it's an increasing strategic challenges to the.
Speaker 2: You know, our vulnerabilities.
Speaker 4: Right. It's like the last point I'll say this is
Speaker 4: like you know what this means in the context of
Speaker 4: say state competition. Is it like closes the virtual distance
Speaker 4: and you know, we are protected by Pacific and Atlantic
Speaker 4: oceans for invasion. But China can do a lot with
Speaker 4: you know, just their extremely capable and vastly numerous cyber army,
Speaker 4: and they're they're very patient, they're very persistent, and they're
Speaker 4: investing huge amounts of resources. Not it's just like steel
Speaker 4: actual property, you know what they've done for years, but
Speaker 4: to establish persistence in the advance of a potential military conflict.
Speaker 4: I mean one big story was the volt Typhoon, a
Speaker 4: group that was just you know, you know, named by Microsoft,
Speaker 4: you know, getting into networks in the Navy, throughout Guam,
Speaker 4: multiple critical infrastructure of firms the United States, you know,
Speaker 4: basically in just in case there's a war and we
Speaker 4: need to flip off telecommunications systems, we need to shut
Speaker 4: down satellite communications, we want to flip off you know,
Speaker 4: other aspects of critical infrastructure. Like this is a this
Speaker 4: is a constant battle that's happening behind the scenes. Is
Speaker 4: the defense of critical infrastructure against nation state attacks. And
Speaker 4: it's yeah, I don't think anyone just like flipped the
Speaker 4: lights off for no reason, right, Like, because if it's
Speaker 4: really catastrophic that would be perceived potentially as up to
Speaker 4: and including you know, like an active war, if not
Speaker 4: strategic threat.
Speaker 1: So the US is I'm sorry, China is like heavily
Speaker 1: investing into this area to build this kind of army.
Speaker 1: You mentioned Russia with their bots so forth. Is the
Speaker 1: US also heavily investing in this area?
Speaker 4: Oh yeah, I mean this is this is the I
Speaker 4: mean space and cyber are the two two domains of
Speaker 4: warfare that any modern state is investing like leaps and
Speaker 4: downs to try to attain astgig advantage. I mean, we
Speaker 4: probably have the most exquisite like technical capabilities to get
Speaker 4: into the most hard systems, but fundamentally it comes down
Speaker 4: to like numbers of people and trained hackers that can
Speaker 4: actually sit at a computer eight hours a day and
Speaker 4: have a particular target. And China just has lots of
Speaker 4: lots of people like you know, there's anecdotes that you know,
Speaker 4: you might think you're a fifty or one hundred person
Speaker 4: startup with some cool aerospace defense technology, and you might
Speaker 4: think you're too small to be on the radar of
Speaker 4: Chinese hackers trying to might have a dedicated team five
Speaker 4: to eight guys whose sole job it is is to
Speaker 4: like get inside your networks and live there. And they
Speaker 4: just have enough people where they can do that, you know.
Speaker 4: FBI director said, it is probably a fifty to one
Speaker 4: ratio of kind of offensive defense. We have our own
Speaker 4: cyber command that you know, does offensive cyber operations, whether
Speaker 4: they call persistent engagement or hunt forward, to get our
Speaker 4: own access into the Chinese systems, get access to the
Speaker 4: Russian systems, et cetera, to create a lit but like
Speaker 4: a mutually started destruction thing.
Speaker 2: It's like, well, if you hit me, I can hit you.
Speaker 1: Uh.
Speaker 2: It is a yeah.
Speaker 4: And we saw a little bit of this with Ukraine,
Speaker 4: but it was it was it wasn't a full scale
Speaker 4: conflict and it was really sing a Ukraine like the
Speaker 4: back to the techno industrial War. Like Ukraine basically offloaded
Speaker 4: their entire government, which is you think about a digital
Speaker 4: services and information, your citizen's data, pass information, tax data,
Speaker 4: you know, health payments, at social security, everything sits on
Speaker 4: sits on.
Speaker 2: Servers in some government building.
Speaker 4: They basically took all those and they put them into
Speaker 4: a Microsoft server run by you know, on on Microsoft
Speaker 4: Asia and data centers in England. So It's like this
Speaker 4: is an example where you can have like digital exile, right,
Speaker 4: digital governments in exile being run uh, you know.
Speaker 2: On private infrastructure.
Speaker 4: And I think this is like a different way to
Speaker 4: think about warfare now, is it's not just invading capital cities,
Speaker 4: but it's also competing over like, well, how does that
Speaker 4: system of government still run? Right if it's being run
Speaker 4: on data centers. If you built the data center, maybe
Speaker 4: the government can't run. So it's like a strategic it's
Speaker 4: a strategic defense maneuver to take the government servers and
Speaker 4: be able to move them out of the country and
Speaker 4: still have the government. You know, that government still deliver
Speaker 4: its functions right, still tax payments, etc. So it's a
Speaker 4: fascinating kind of new dimension of warfare that we're seeing
Speaker 4: in full.
Speaker 1: So what an insightful, long and very scary conversation to
Speaker 1: kind of frame of the world.
Speaker 3: And it's easy to see this power structure. And this
Speaker 3: is something like Ray.
Speaker 1: Dalio has talked about extensively, you know, kind of the
Speaker 1: rising power meeting at the time of meeting the declining
Speaker 1: power as an agile problem, right, the sun growing up
Speaker 1: and overcoming the dad or whatever it is. Right, So
Speaker 1: we see that, and obviously we don't have a crystal ball,
Speaker 1: at least I don't have one.
Speaker 3: Maybe you do.
Speaker 1: But I'm curious where you think, you know, how you
Speaker 1: view this over the next couple of years, like maybe
Speaker 1: maybe through the next five years or the or the
Speaker 1: rest of this decade. You know, in my opinion, it
Speaker 1: seems like this continues to break apart, which leads to
Speaker 1: probably more supply chain disruption breakdowns, you know, tit for tats,
Speaker 1: et cetera, which probably leads to higher inflation, potentially you know,
Speaker 1: less goods and services for us in certain sectors moving forward.
Speaker 1: I don't know, but what that's kind of how I'm
Speaker 1: reading this. How do you read it over the next
Speaker 1: several years?
Speaker 4: Yeah, I think I think in terms of scenarios and
Speaker 4: like the two like the biggest divergence in terms of
Speaker 4: possible snaries is like do we avoid war with China
Speaker 4: or do we have over China. It's like because those
Speaker 4: are kind of like those are very vastly different futures, right.
Speaker 1: If we have do you think if we have war
Speaker 1: with so, let's say we have war with China, do
Speaker 1: you think it's really the you know, technological information cyber
Speaker 1: financial war or do you think there's a chance that
Speaker 1: we would go into a hot war.
Speaker 4: I mean, this is why the branch of the branch
Speaker 4: of the scenario is, like, you know, one scenario that's
Speaker 4: plausible is China thinks they can basically do a crippling
Speaker 4: first strike to sort of take out all of our
Speaker 4: military forces and all of Taiwan's forces in like a
Speaker 4: matter of hours. Have have the Taiwanese sue for peace
Speaker 4: and then basically think that US doesn't have the political
Speaker 4: will to mobilize and fight our way back into the
Speaker 4: first island chain and you know them kick them out
Speaker 4: of Taiwan. That's like one scenario that maybe China's banking
Speaker 4: on where they they engage in military conflict, but we
Speaker 4: essentially give up, We essentially retreat, and there's a new
Speaker 4: re architecting of the Pacific security sort of structure. One
Speaker 4: is what we do, fight and we win and we
Speaker 4: get the Hedgemond, it gets a new lease on life,
Speaker 4: and China basically is probably you know, knocked back for decades.
Speaker 4: So that's like the strategic stakes of if you actually
Speaker 4: get into conflict, it's who gets the decisive victory determines
Speaker 4: you know, really the branching of it.
Speaker 1: But either of those outcomes probably leads to supply chains
Speaker 1: breaking down.
Speaker 2: Oh yeah, I mean in any scenario where there's missiles.
Speaker 4: Flying, I mean, the world system is going to break
Speaker 4: in some critical ways, right, Like the FED is going
Speaker 4: to have to monetize ten more trillion dollars in sovereign debt.
Speaker 4: There's going to be probably price control, be inflation, but
Speaker 4: it'll be price controls, it'll be capital controls, it'll be
Speaker 4: you know, a very different world, world environment.
Speaker 3: Right in either outcome, But just get into that event,
Speaker 3: that's what that means.
Speaker 4: Yeah, if you get in any sort of shooting shooting war,
Speaker 4: whether it's you know, anything that basically breaks global supply chains,
Speaker 4: is going to be immensely disrupted.
Speaker 1: You know, unless China moved hard on Taiwan and the
Speaker 1: US just basically rolled over and said, fine, let's just
Speaker 1: keep moving forward.
Speaker 4: Yeah, I mean, that's like the optimistic scenario where we
Speaker 4: just sort of give up Taiwan, but then we sort
Speaker 4: of you know, reinforce our sort of quasi nuclear you know,
Speaker 4: uh winking a nod to Japan and South Korea, and
Speaker 4: then we saw hold the line. Now, a lot of
Speaker 4: people would say it'smpossible to hold the line. Maybe you can,
Speaker 4: maybe you can't.
Speaker 2: I don't know.
Speaker 4: I mean, you don't know until you get there. But
Speaker 4: that would be the optive scenario where actually, you know
Speaker 4: t SMC still functions. We just have to pay it,
Speaker 4: you know, additional tax essentially to the Chinese to get
Speaker 4: our chips and things have become much and more expensive,
Speaker 4: and you know, US powers and as dominant around the world.
Speaker 4: That's like so that's like where the China dominant question
Speaker 4: comes in, is like, can we get through the next
Speaker 4: three to five years without that sort of acute conflict scenario.
Speaker 2: Even if we avoid that, then I still think you're
Speaker 2: in a world where just the structural.
Speaker 4: Factors of embedded growth obligations in the West, retiring boomers,
Speaker 4: the you know, potential declining energy return on energy investment
Speaker 4: from you know, legacy fossil fuels is going to be
Speaker 4: hard to sort of keep powering the growth that we
Speaker 4: need to service these embedded growth obligations. You're going to
Speaker 4: have to sort of, you know, start to transfer money
Speaker 4: from the boomers to the millennials, whether it's through you know,
Speaker 4: the devaluation of their savings, the you know outright direction
Speaker 4: of capital, tax distribution, et cetera. So you're going to
Speaker 4: see some major political dynamics unfold in the next five
Speaker 4: or ten years. They just function of generational distributions of wealth,
Speaker 4: incoming inequality, energy issues, et cetera. I mean, so I
Speaker 4: think even then you're in for you know, a pretty
Speaker 4: like dynamic decade. Right, this is going to be the
Speaker 4: decade to where a lot of these imbalances that have
Speaker 4: just sort of just stayed in the global system for
Speaker 4: the past at least forty years fifty years have to
Speaker 4: be resolved. Whether you can you know, stretch that resolution
Speaker 4: and rebalancing out like over many many years, Like if
Speaker 4: you can do the the forties playbook of have a
Speaker 4: little bit of inflation right to the sort of devalue,
Speaker 4: but then before everything breaks you bring it back down.
Speaker 2: Then you do a little bit more.
Speaker 4: It's kind of the you know, like Lynn Alden has
Speaker 4: done that chart, right, you can play that over ten
Speaker 4: or fifteen years, and that's maybe a way you could
Speaker 4: play it.
Speaker 2: Maybe that's what you're seeing now, right. We did the
Speaker 2: first wave, and maybe there's gonna be another wave.
Speaker 4: Maybe there's another wave after that, and then you can
Speaker 4: you know, stretch the pain out without having an acute
Speaker 4: crisis situation.
Speaker 2: Yeah, I mean I don't have that crystal ball.
Speaker 1: But either way, this conflict is here. There's multiple ways
Speaker 1: it could play out. But almost regardless of how it
Speaker 1: plays out, it means probably supply chains of disruptions and
Speaker 1: more inflation and more fed monetary debasement.
Speaker 2: Yeah.
Speaker 4: I mean, there's always wild cards, so I always pay
Speaker 4: attention to like tail risks, right, there's always things that
Speaker 4: can be weird that you didn't anticipate, and so I'd
Speaker 4: always pay attention to, like stuff can happen.
Speaker 1: That's everything's possible. Well, we have to think about what's probable, right, Yeah.
Speaker 4: Yeah, I mean you know, Russian invasion, pandemic, you know,
Speaker 4: China war. These are like you might call it gray
Speaker 4: like gray rhinos, like they were possible, but that you
Speaker 4: never thought they would happen like next year, and so
Speaker 4: you didn't really bake it into your forecast, and then
Speaker 4: they happen, and then you've got to radically readjust your
Speaker 4: distribution of future scenarios now that you know you've taken
Speaker 4: a different branch of the timeline.
Speaker 3: Yeah.
Speaker 1: Wow, Well there's a lot to think about. Super insightful
Speaker 1: for me. I really appreciate that. Man, what amazing conversation.
Speaker 1: A little scary, A little scary, I have to say.
Speaker 3: You know, I know, I know you.
Speaker 1: You work in the kind of the cybersecurity and policy area.
Speaker 1: We'll link to all your stuff down below. Definitely give
Speaker 1: him Matt a follow. He is a wealth of information,
Speaker 1: so we'll link to that down below. Anything else you
Speaker 1: want to bring attention to or shout out or anything
Speaker 1: like that.
Speaker 4: Now, I appreciate you have me on these are These
Speaker 4: are all very tricky, complicated questions and I'm just trying
Speaker 4: to get, you know, at least the best handle I
Speaker 4: can on them. In a yeah, thinking in public is
Speaker 4: what I do on Twitter. So happy to engage.
Speaker 2: All right, thanks so much, thanks for having me