In this article we will recap the predictions made in TechDollar, both micro and macro, and will also go over what I think is just as important, which is the anti-predictions that we made as well.
We will then go over the competing systems emerging to the TechDollar, the geo-politics involved, and how long can the current western system go on for in light of the principles we talked about in the original article.
A few years ago before I got sick I released TechDollar the article and did a series of Twitter spaces, where I explained what was really underpinning the current value and power of the US Dollar which was the US tech conglomerate infrastructure that has globalized much of the world. As opposed to the mainstream understandings of the world. One only needs to read headlines like this now to see what I mean.
We talked about how there was a fissure developing in the world between the producing countries of physical infrastructure of the world, and the tech infrastructure of the world. And how this fissure was going to exacerbate as time went on. This fissure has turned into a canyon and will be the focus of TechDollar 2, the war between these two worlds.
We also went over the principles of how currencies work, and with that made a series of predictions as a result. The predictive accuracy of TechDollar was unmatched by anyone I know of. This unparalleled accuracy was possible because we work from principles rather than ideology.
Much has changed in the last few years since I released TechDollar. Today we will go over what we predicted, and what is to come.
As always this will be long article, so grab a drink. And rest assured, this wasn’t written by AI, it’s not smart enough, I tried.
Understanding TechDollar and it’s predictions from 2020
The validity of any theory is in it’s predictive capability.
In 2020, we made a series of predictions for both personal and global macro. These predictions at the time were both counter-intuitive to financial, economic and geopolitical commentators. However, they are the conclusions of following first principles. Those who listened made out like absolute bandits, securing without a doubt the best returns that exist in the market, especially on a risk adjusted basis.
In the Twitter spaces, and private consultations we went over more in-depth due to people asking what specifically they should do. However these were all present in the article as well.
The primary positive predictions were:
Big Tech were significantly undervalued, even though their market caps at the time were at all time highs both individually and historically. They are the prime drivers of the American, and by extension the world economic engine. We separated the companies into 3 categories.
Primary infrastructure - which is Apple, Microsoft and Google. I suggested that this should be at least 50% of a portfolio, with Apple being minimum 25%. While at the time I thought this was highly aggressive, I have to amend this take. I now see Apple equity as the new current risk-free rate, and debt should not be touched. And that all investments now should be compared vs Apple as the minimum benchmark. And that Apple and Microsoft are fast becoming the infrastructure of the world. With Google close behind, they are struggling currently with their core business function. So I am downgrading them slightly, but not completely.
Hardware infrastructure - this being Nvidia, Intel and AMD, becoming the backbone of American industrial tech hard power.
Support, network, corporate and advertising infrastructure - This being Amazon, Meta, Netflix, Salesforce etc.. This by far was the worst performing from an investment perspective, but more because of specific company issues more than anything predictive from a logic perspective.
The real value was going to come in the form of strategic hard assets - Which is oil, food and commodities (you can print money, you can’t print goods).
Due to money printing, this was going to exacerbate the gap between the rich and poor even further as that is the mechanism behind the phenomena. As government deficits are the cause for the money printing, the printing will not stop. This exacerbation has only gotten worse.
I also made a series of economic predictions that were completely unparalleled at the time. I both correctly called that we would see much, much higher inflation and that we would also see much higher interest rates.. I also specifically predicted the inflation numbers of 7% official with 15% unofficial. While its self evident now, back then I was the only one saying this. I suggested people borrow money at back then 2-3% for long term fixed periods. If you followed this, you also made out like a bandit. Particularly those who used this method in property, as suggested.
Food and primary commodities were going to be the most important, and that flexible capital were going to be your best friend. - Current food inflation is at least between 30-50% for all items since publishing Tech Dollar.
Macro predictions that because people still believed in theories other than TechDollar for the US Dollars power, that nations and major institutions would make significant errors in their calculations of how to proceed. Particularly China, Western governments the gulf states and a multitude of investment houses.
And that due to the logic imbalance between modern western religious beliefs and reality, institutional reputations would be sacrificed to maintain liberal religious power. Leading to a collapse in confidence internally of institutions both domestic and international.
I consider these to be far more important, the above is easy, this part I am much more proud of. The primary negative predictions were:
As real inflation was going to be much higher I specifically said to stay away from owning any form of debt, credit, bonds and financials and any debt based company relying on such customer bases. This alone was worth the price of admission, had you simply done this you would have avoided a catastrophic loss of capital during these years as interest rates rose. Contrary to mainstream finance, who recommend large bond allocations.
That things were going to get bad, but slowly over time. And that we have time, but not infinite time. That the right wing doomsayers such as Jeremy Grantham
and Peter Schiff were also completely incorrect. Those who listened to these people who are correct on the domestic logic, but incorrect on the global currency structure logic, lost a huge amount of capital.
To avoid investments in countries where these fissures were developing in that capital from a western perspective was going to be at risk. And the same in reverse from a Chinese / Russian / Arabian perspective. This by far was the most important prediction.
Those who listened to TechDollar had the best returns of any public market investment strategy that I am aware of, by a significant margin while protecting capital in an increasingly politically charged environment. Which was only apparent at the time to those of us who are realists geopolitically (which is essentially nobody in the modern west).
Update on the Tech Dollar
Over the last few years, the technological infrastructure governing the world has only increased in value, both monetarily and in it’s value creation to the world. Instead of pulling back in terms of valuation and impact as many thought would happen, it’s only accelerated and I believe this will continue with AI.
Because of this, while the US government has printed and borrowed trillions of dollars more, the underlying value creation is somewhat keeping pace with the spending and printing of the US government. So while we see high inflation, the hyper inflation doomsday scenario is not occurring, because of this dynamic as I explained in Tech Dollar 1.
The split between the physical economy and the digital economy in the west has widened, and will continue to do so. The technology infrastructure is the main driving force behind western economic power and this has only accelerated. This while causing political instability domestically in the US, has maintained political (financial) stability internationally.
The power and importance of US and western tech infrastructure has grown by magnitudes and this can be seen both in the stock price, the price given on the earnings of these companies, and revenue expectations now baked into these companies.
The value difference between customer and product is, I still think this is the primary reason for the USD dominance, and the true underlying power behind the continued usage of the USD globally, despite the US government abusing this for domestic and ideological reasons with inflation, sanctions and deficits. Meaning, while the valuations are expensive, they are still the best assets in the world, by a significant margin.
Companies, institutions and especially governments will always act in their best interests. The delta between the value of the modern tech infrastructure, and the price they are selling their products at, the USD will remain supreme until this ends. To think of it another way, ask someone how much you would need to pay them to not use a modern smartphone/iPhone. Or ask a business how much they would have to be paid to not use modern western tech in their business. The difference between that price they say, and what is currently being charged by these companies, is the value that the US government will be able to continue to extract via money printing and deficits.
While physical goods and manufacturing, and even high end manufacturing is important. The tech infrastructure in terms of value and the difficulty of replicability of it means that the Dollar will remain supreme and dominant to the majority of countries worldwide. This also encompasses the underwater and physical network infrastructure of the world, but this is a lot less US centric even though it’s primarily now controlled by western entities.The tech infrastructure is simply far too valuable and the advantages it gives far outweigh any current existing system.
This is the real reality of the situation. As long as this exists, and the tech infrastructure is priced and sold in USD, the USD remains supreme worldwide. This is what is actually still underpinning western global dominance and enabling American power. Not any other reason most people espouse.
Tech Dollar 2 - War of the worlds
Rise of great power competition and reserve currency structure
The question that is the most important for people reading this is the future of the US Dollar. Will it remain the reserve currency? And will it retain its strength and dominance. As always, we will work from principles to understand, then apply those principles to the situation to project as accurately as we can what will likely happen in the next few years regarding this topic.
In TechDollar 1, I explained that the world was bi-frucating into two systems. The countries that were producing real physical goods, and the tech and financial infrastructure of the world. That this underlying system was going to cause friction as the financial structure is currently set up to absorb real wealth from the productive countries and transfer that wealth to the consuming countries, via money printing. Back then this was simmering under the current, and is now a massive fissure that has effectively split the world in two. This is effectively the western system, and the increasingly growing BRICS/non-Western aligned systems lead by China.
This means that instead of having a monolithic unipolar system, as we have had for nearly 40 years, we are going into potentially a world where there are two competing systems vying for power. This is the underlying current that the world is going into, this is what is driving the emerging great power competition now.
In order to assess if the USD is in danger, either of reserve status or it’s integrity entirely. We need to lay out the principles at play of reserve currencies in general, then apply those principles to the current situation. This way we remove our bias from the situation to attempt to get the most accurate predictive capability. So, we have two separate issues to parse out, one is internal within the Dollar system itself, and the external competition to the dollar.
The core of a reserve currency is that they require a unique value proposition, being the dominant economic power of the time. It’s this unique economic property that is the foundation of a reserve currency, which then the downstream requirements stem from. Like wide acceptance, stability, reliability, liquidity etc. While those things are important, its the underlying value structure that is of primary importance, not the financial plumbing of the system, which many focus on. Think oranges and not tokens from the analogy that I used in TechDollar 1.
Reserve currency status commands many benefits to the holder, which is why it is the ultimate prize of the international system, and the most exalted status within it. In modern times, it allows the issuer of the reserve currency to extract tribute from those subservient without having to use overt force.
Reserve currencies since we have understood them have been intertwined with the geopolitics as much as the economics of the system that sustains it. Which is why the incumbent generally converts that economic power to military dominance. When faced with a challenger, the up and coming competitor must unseat and surpass both the economic and military power of the incumbent. Reserve currency holders have generally been the dominant naval power of the world, atleast since the 14th century. This is primarily due to the protection of international trade, which is the unspoken agreement that the world makes with the incumbent. While unsavoury to many, this is the burden of the position within the international system.
There have been suggestions that a competing system needs to exist for a reserve currency to end, this is not the case logically. A reserve currency can cease to exist without a need for a competitor, internal collapse can occur just as easily. However currency competition can accelerate the collapse as it gives release valves during the wealth destruction process that occurs during monetary collapse. So I would frame an upcoming competing system in this way instead.
So now we have the background principles done, we also need to assess the external competition.
End of unipolarity and international system
For the last 2 generations, we have been in a unipolar system. What this means is that the incumbent western power (US/NATO) has been supreme and unchallenged, without any great rival or competitor since 1990. This is a very rare occurrence in history, and while in my opinion still intact, it now faces a real threat to it, the largest since 1990. This for the foreseeable future is coming to an end and we will be in a multi-polar system. With the western system on one side, and the Chinese/BRICS on the other. This means the return of great power conflict and the return of realpolitik structure. This has been obvious to anyone who comes from the realist school of thought, but this is very difficult for someone trained within a modern liberal understanding of the world.
One thing that is misunderstood within the west, is that the west is a ruthless great power. Unlike anything ever seen in history, those who are insulated from it aren’t exposed to this, but we are the most ruthless great power in history. It’s important to understand that the system developed by the west, during the unipolar moment, was specifically designed to attempt to religiously guarantee western power. Because the ideological system driving the western system at the time was liberalism. The last 40 years have been us trying to convert the world to liberalism(our new incumbent system), to attempt to ensure global peace. The reverse of this will now begin to occur, and many will be very surprised, (especially China and Mid-east) at just how ruthless the west will be in regards to the countries aligned against the America/western system.
To understand why, I explain the current understanding of the world here in this tweet. This is a fundamental mistake of liberal international theory, which has caused this entire situation. What this meant is that delusional beliefs within the post WW2 ideology were allowed to go unchallenged, this is ending and the return of realpolitik is coming back. With the rise of great power competition, these delusional ideas are slowly ending in the halls of power within the west.
My analogy that I use to explain the structure of the international system, while extremely unsavory is the most accurate way to think about it, is that it’s a giant prison with no prison guards. In that it’s prison politics, with suits on, and nobody to turn to if anything goes wrong. Power within the international system is a zero sum game. If someone gains, someone has to lose. It’s a fixed thing, so when an entity gains more power, it does so at the expense of another. And most importantly, the only rule is there are no rules.I explained the basics here on twitter.
So as the challenger system grows, it will desire more influence and power within the international system and challenge the western order. This is what will be underlying the major conflicts worldwide now and going forward. Most major issues and events will be a derivative of this underlying fact. The world is slowly aligning and splitting into one of these two systems, and everyone who matters, will be forced to choose a side.
This is going to be a war in every sense, between these two systems. They are competing for ultimate power within the international system. Only one can win. In these kinds of conflicts, you cannot play both sides, to play both sides is to be an enemy of one supporting the other. This is going to be a very different political and business environment unlike anything most have experienced in the past 40 years. Where it was a positive sum game of globalization and internationalism. We are now moving into a situation of protectionist structures between two competing blocks.
I normally try my best to avoid technicalities, because people who read me already know the numbers. The hard part is to do the correct underlying logic, the data is well known and public. But here is BRICS vs G7 GDP in PPP terms for context.
The reason to use %GDP per PPP is to normalize the data, one of the reasons many western analysts made mistakes with regards to Russian economic resilience was to misunderstand the data they were looking at. While imperfect, a much better method of comparing relative economic strength.
This means from a US dollar perspective, there is now a potential economic competitor system to the dollar. This doesn’t mean that it is going to, or is, but that it’s a possibility in the future.
Most are not aware just how difficult, and how long it takes for a competitor's reserve currency to change, even with a smooth transition, such as GBP to USD took decades. While tech can accelerate this, the vast infrastructure that is required to do this is severely underestimated by a significant number of commentators on this. The value and network effect of the USD is unmatched and this value is significantly discounted by many, which is why so many reckless predictions do not come true around this.
My opinion is that should the US dollar fail, or lose in a global conflict, there is a possible competitor to the dollar,but that this isn’t enough to supplant the dollar as the global reserve currency. At least not within the next decade, which is what matters to most reading this. The BRICS system doesn’t have the unique economic requirement, nor the global trust, nor the infrastructure to support it. From this perspective, the threat to the dollar externally while it exists, is nowhere near what many portray it as. The greatest threat externally is a diminishment of western power, rather than a supplanting of it in the medium term (5 years).
People often forget or don't know that China for many years has repeatedly attempted to supplant the dollar over the years already. With the Petro-yuan system, gold-backed yuan via shanghai gold exchange and a variety of other attempts to do this. They have failed because the Chinese, like western diplomats, misunderstand that the US Dollar’s power is due to western tech dominance. Not the reasons everyone else says.
The technicals of China are a very interesting topic, however not within the scope of this article. I personally believe China has significantly greater problems internally than most analysts give respect to as I said here years ago, but this is for another article.
Regarding alternatives
Gold historically was the underlying monetary system until recently. Modern tech is by far, more important than gold now, and isn’t essential currently for a reserve system, as tech is much more important to underpin an economic system. Institutions and govts will take tech over gold now. While important, and I don’t advise against it (raw materials are a great hedge against inflation), it isn’t the panacea because of this underlying reality that many see it as. Think of it another way, if you can only have one, would you rather have an iPhone, or a gold bar.
Gold however is being used by the alternative side (Russia/Iran/China etc) as a trade mechanism between them, however for the western system, the Dollar will remain the dominant system.
Crypto as I said in Tech Dollar 1 is a release valve for a minority of people. It is short term deflationary (as it takes real dollars out of the system in exchange for crypto) and inflationary long term (as people eventually will trade crypto for goods) - removing real goods from the dollar system.
Unfortunately the crypto industry has taken a sharp turn into complete scams and fraudsters. Crypto technologically has the capacity to supplant the dollar, or be an alternative to people should it completely fail.
Both will be important from a personal perspective, but minor factors in the bigger picture as I don’t think they will be used to supplant the dollar, rather augment it’s own power at least within the next decade or so.
How much longer can the current USD system go for and what to do
What you are here for.
So this is the trillion dollar question everyone wants to understand. I cannot stress how important going back to basics of finance is for this question. One of my favorite examples for this is Kyle Bass from Hayman Capital who is a supremely talented investor / analyst predicting the fall of Japan in 2010. His technical analysis is excellent and is a good baseline for how to approach sovereign issues, but his structural understanding of tools available and his misunderstanding of monetary structures, lead to him making decisions that cost him and investors huge amounts of money. As his analysis didn’t materialize due to his ideological mistakes, not his technical analysis. Kyle bass on Japan 2010:
How bad is the situation? There are few words to describe how bad things are technically. $200+T. One only needs to look at
https://www.usdebtclock.org/
to see the raw numbers of how eye watering the numbers are for how profligate and irresponsible the US govts have been. This is both the US and other govts around the world doing this simultaneously.
Similar to Japan, however we can print using the world to absorb the value structure.
Take into account material increases and efficiency increases, value and production at the same time as govt becoming more and more largess. To think of it with my original analogy, we are increasing the amount of oranges, simultaneously the govt is consuming more and more resources, but also creating more tokens. You need to split the two and measure them separately. People see one side as profligate and forget that there is another side propping it up. Particularly if the world splits in two.
I want to debunk one theory that i’ve heard from Austrian theorists that the US is in a worse position than Japan, because Japan had high savings and savings culture while US doesn’t. The US is able to absorb value through printing of the rest of the world, until the tech infrastructure is replicated, people will use the USD until others can offer a comparative tech product. Which means the US govt has access effectively to the savings of the rest of the world. Which is where I get my statement that money printing is how they extract value of those subservient to them. Those who wish to use US tech infrastructure, will be subject to this value extraction.
While deficits of $1T+ per year, with debt repayments of nearly $1T themselves, people think this is unsustainable short term and will combust. I disagree, there is atleast a 5-10 year runway without the existential crisis, however as I said in TechDollar 1, it will get worse every year, the money printing will exacerbate all the issues internally that will make the ideological crisis and internal civil war going on in America and the west much more explosive and unpredictable. However the existential crisis will eventually come, but most severely underestimate what money printing is going to be able to enable and paper over until that time. And that means a devaluation of another 50% over the next 10 years, effectively halves the debt in real terms. Yes it will exacerbate the split between the rich and the poor, and a massive transfer of wealth etc, but in terms of the functional structure of society, it will remain intact if this is the only variable.
The Fed has publicly stated that their inflation target is now 2% over time, and to moderately achieve above 2%. meaning that they may never (and won’t) hit their target of 2% inflation or under for the foreseeable future. 2% is the target, which they won’t ever hit but they will use whatever obfuscation tactics required to mask the basic requirements for the math to work.
Remember they have to choose either political and govt power, or their own credibility, and as I said in TD1, they will sacrifice the institution for power and ideological congruence.
Whats to come?
1970s redux, history doesn’t repeat, but it does rhyme.
As the higher interest rates will start to encumber the real economy. Effectively, what will happen is the “real” economy will go into a depression, with much higher inflation simultaneously.
Remove the dollar amounts in your mind for a second, the govt seeks to consume more real resources(oranges) from the economy. This requires a net reduction in the consumption of everyone else in order to facilitate this. The method it uses to do this can vary as I explained in Tech Dollar 1, but the logic remains the same. And they are going to print money to facilitate spending from the govt. Which means they are going to have to do some form of yield curve control, and some form of debt monetization again, which is the fundamental cause of inflation. So as long as the govt is running deficits that it has to monetize in order to pay for, inflation will continue at much higher rates.
So the real issue is that the US govt liabilities needs to be cut by at least half, which means the value of the currency needs to be devalued by about 50%, this will be done via inflation to do this. The other option is to cut spending, and stop printing and borrowing money, which is unlikely due to this being ideologically and politically impossible.
This alongside inflation is what has to occur, which will effectively create a stagflationary recession/depression for the majority of the economy until asset prices come down to much lower values (ie real rate of return, above inflation, which means cash flowing assets will be priced at 15+~% net yields), and consumption within the real economy is commensurate with the govt spending. The govt seeks to consume vastly more resources, it needs to do this at the expense of the real economy.
While the tech, tech adjacent, oil and gas, commodities, food (real / hard assets and real production) etc kind of industries and surrounding industries plus the govt will continue to boom, the tech infrastructure will continue to reign supreme worldwide. All the current trends will simply continue to exacerbate, the realities of the business cycle will not be avoided, and the massive credit and printing expansion of the last few years will produce a contraction. However this will not be evenly distributed.
Which means we’re going to have high interest rates, but higher inflation, negative real yields, but higher nominal yields and will print the difference.
In the short term they will have to do some form of yield control, but they need rates to be high enough not to have the currency slide too far relative to the rest of the world. They are then going to have to print the difference.
Lending institutions will have their book value collapse even further (as I said in TD1, to avoid debt and credit institutions like the plague, they're completely screwed) and the ability to lend money will dry up for the majority, and even the very well connected and funded. Cash flow will reign supreme, and cash will begin to become king again. As access to credit will be much harder, as higher interest rates, with higher inflation will cause lenders and lending institutions to completely clam up. Even though they will be devaluing the value of cash via money printing, during this process, it will be worth holding, in order to acquire assets, particularly illiquid ones that produce real goods and real cash flows. Ensure that you buy at extremely attractive multiples as a risk premium for holding cash. These kinds of deals are beginning to occur, but it will become much more extreme going forward.
While central banks may drop rates by small amounts to ease financial shocks, they are stuck between a rock and a hard place, they cannot drop rates because their currency will begin to tank vs the Dollar (see Japan now). The Fed cannot really drop rates without causing even higher inflation, as they need to monetize the debt being issued to cover govt spending requirements.
This is the fertile ground of political extremism, as the economic system will begin to fail for the majority, large swaths will seek more extreme solutions to solve the glaring problems that the current ruling ideology has caused. This isn’t an American phenomenon, this will start to happen across many countries in the west, as the driver of this is ideological, however the economy is the fuel to the fire. And as the economy gets worse, the ideological splits will become more and more extreme.
So you will have civil / ideological wars within western countries, while the security apparatus of those countries will also be fighting an external conflict and security competition with China and the BRICS block.
Additionally, manufacturing will slowly be attempted to be forced back into western countries, or adjacent countries due to the security competition. However due to the fact that policy makers do not understand how to do this effectively, my guess is that it will happen somewhat, but it won’t happen at the speed desired. Simply because of the ideological and political issues internally within the west that needs to be washed out.
Mistakes in traditional analysis
Back to basics of finance. I want to refute the mainstream understanding of the metrics to look for and how people have been measuring risk metrics, namely GDP and Debt to GDP ratios.
This is the metric that most people are looking at when looking at the solvency of a sovereign, this is highly problematic, once we parse out the components of this logic.
Think of it like a household, national debt is the equivalent of a mortgage for a govt. The way we test the strength of a mortgage is the income to debt repayment, NOT capital value. That’s the collateralization, not the loan repayment capacity.
We need to parse a few different financial issues from principles. Debt to GDP, GDP.
Firstly, we need to debunk GDP as a useful metric for this. GDP=C+I+G+(X−M) is the formula for GDP. Government spending is considered to be a positive within this metric to determine the solvency of the institution being measured on its capacity to repay. So the more it spends, the better the metric looks in its capacity to repay as GDP goes up. Additionally, this presumes the entirety of a nations wealth is subject to it’s government, and the government owns everything and its population. Once you understand the metric this way, you can see why governments love to use this metric, as it inherently implies omnipotent type power over its constituents.
So for a metric in which we are determining the solvency of the entity, the more the entity spends money it doesn’t have, we then see that as credibility in it’s capacity to repay.
This only makes sense if you have never once thought about this metric critically.
Dan’s method is debt service costs / total govt revenue, once this hits above 50%, then the printing goes hyperbolic or spending cuts are required (like Argentina now). Until then the party can continue, and financial engineering can paper over issues in the short term.
Geo-pol from Ukraine/Gaza wars
Nothing sinks reserve currencies historically other than self-inflicted stupidity. From Rome to Britain, and the American/western empire is no exception.
While the US and the western system has had monolithic power, it's not omnipotent. It still requires “buy in'' from a lot of the world. Particularly now when great power competition is back on the table.
The current Russo-Ukraine war, in my opinion, is one of the largest strategic mistakes of modern western liberal strategy. Not for moral reasons, but because it goes against the basics of power and realpolitik strategy.
From the most basic power strategy, if 1 and 2 go into conflict, it’s the person who teams up with 3 that generally gets an advantage. 1 generally sides with 3 to beat 2. 3 prefers 1 to 2, due to risk aversion. A historical example of this was the US allying with the Soviet Union to beat Nazi Germany.
Basic strategy would say that America and the west should be teaming up with Russia to contain China. However due to the Russo-Ukraine war, this has forced Russia and China together alongside Iran to create a real power block that can wage a possible threat to western dominance. From a strategic point of view this is the most inadvisable logic, but the current western power structure is based on religious liberalism and not rational realist strategic thinking.
I will go into this war much deeper in a different article. However from a dollar perspective, all this has done is solidify the potential competitor block, and forced them to create and adopt systems outside of the Dollar system. This is the one thing I would have advised never to allow.
The Gaza war has forced certain sides to be taken regarding Iran / mid-east and China. As the two blocks emerge, nations are now being forced to choose sides.
Everyone is going to prefer neutrality, however this forced Israel to choose sides, and it will choose America. Same as the rest of the mideast and other countries, as conflicts and issues arise, it will go down this split and countries will be forced to choose a side.
In the mid-east, Iran has fairly clearly chosen China and Russia. Which means the mid-east is and going to be moving forward Shia-BRICS, vs Sunni-West. As things heat up in the Pacific more, the mid-east will be less important for America, but the requirement to maintain global trade will still fall on America. However this will mean much less involvement from the west in the mid-east long term. Particularly now that the US is a net exporter of oil and the US no longer is trying to spread liberalism through war anymore, which was the driving force behind the mid east wars of the last 20 years. As the world will now revolve and organize around the China / US security competition.
Which means the sides are now effectively America and 5 eyes, EU, Israel, Sunni Arab Gulf states, Korea, Japan and the pacific nations vs BRICS, Venezuela, Cuba etc. With realistically the only swing states being Turkey and India. Everyone else is going to pick sides, or try to remain neutral (this won’t work). Unfortunately this is how security and power competitions work.
One thing that is for sure, is global conflicts are going to be much more prevalent going forward. The golden era that we have been accustomed to of relative world peace is coming to an end, as great power competition returns.
Western sanctions
Disruptions to the Dollar, western value and international trust in the western system.
The weaponization of the Dollar against the US’s strategic opponents is in my opinion doing more damage than good. While this is not going to be the deciding factor or pivotal issue, it will be one of the marginal cases that will stack up should issues arise. It will also prompt institutions to accelerate their hedging out of only operating within the dollar system. So by doing this, it is inflationary as this encourages people to exit the system with the capital that otherwise would have had its value extracted.
Sanctions are a curious thing, you hear both sides politically and of the actual sides saying conflicting statements, regarding the success/failure of them. So we need to work back to understand what's going on. (Also notice that the main focus of sanctions levied are tech sanctions, sale and manufacturing of chips and equipment for the high tech industries. The security apparatus understands what is constituting western technical power).
There are two types of sanctions when it comes to international system. One is technical sanctions, and one is economic. We’ll go over both. As one is regarding Russia, and one is regarding China effectively.
To understand sanctions we have the correct ideological principles in which to create the framework for us to understand them. Effectively, they are economic censorship. They operate in almost identical ways, except one is economic and one is information.
Censorship absolutely works, and so do sanctions. However they don’t work in the way most think of them. They are able to suppress capacity and capability in the short to medium term. They are able to disrupt supply chains, understandings etc. But they aren’t able to completely shut down an industry, if they have the components and enough technical understanding to create their own. However, if they do not, then it will work as intended. But this is a pressure valve that is able to work, but not forever.
For example, during the cold war, the US blocked the Soviet Unions access to GPS, which is sort of the modern day chips, but this forced the USSR to create GLONASS, which is their own version. Is it inferior? Yes, does it work? Yes. So you can see, while it does work, if the competing entity has enough technical knowhow, you can’t stop thinking and you can’t stop ideas. Reverse engineering what’s known is much easier than creating something that you aren’t sure is possible.
This doesn’t mean that they are not effective, but they are not the panacea that they are thought out to be, and it creates bad incentive structures for people to subvert and skirt them, as it becomes extremely profitable to do so.
Economic sanctions occur when what the good being attempted to be restricted is a tradable and fungible good. This is what they are trying to do with Russia.
They are effectively consuming western historical value for current power, as they are ideologues and they see these threats as existential, so they are using everything they have, including western cultural norms of private property to win at all costs.
Other upcoming trends
Corporate sovereigns
With the rise of the amount of money that these tech giants are making, and the international nature that they are now able to operate at, the one risk that i’ve only seen myself talk about is the rise of corporate sovereignty.
This hasn’t really been a major issue really since the East India trading company. However with how big and how much power the current tech giants now hold, they are now at the size of many sovereign countries.
They are the gatekeepers to the most important and business defining tech in the world, they are the operating infrastructure the world currently runs on. They in effect are in many ways more powerful than the US govt.
While the govt has the military, for most, it’s much more daunting to go up against Google or Apple, than the US govt now.
Additionally, they are now at the size that they have the income and operational capacity of large nations. Power is power, and call it a country or a company, it will operate the same.
They are now becoming big enough to be sovereigns, right now they do not see themselves with that power, nor have they begun to seriously exercise their real power that they have. But they are slowly doing so, there are signs everywhere as I have pointed out on X a few times.
This isn’t to be understated and it’s a very different world where heads of companies become more important than heads of states of even influential nations. And should the US dollar become a drain on their operations, beware, for they will act in their own best interests. Should they leave the dollar system, that is what is sustaining US economic power, this is the only thing that would cause real seismic shifts, and it may happen if they seek to become and assert pseudo sovereign status.
This will also impact foreign policy moving forward, as we now have companies operating independently of govt influence, and in many cases, more powerful than govt influence.
Globalized politics
Politics is becoming globalized and the splits ideologically between groups is becoming localized, but fought globally.
I don't know what the long term cause of this may be, but it seems that many political races worldwide have become local versions of wider globalized disagreements on social media. This could be my own personal bias however.
AI
As I said in Tech Dollar 1, the value of labor is going down by the day to capital and technology. This has been significantly accelerated by AI. It quite literally is the most unbelievable tech advancement that I have been apart of in my lifetime.
While it cannot do what many of the critics want to fearmonger it to become, (it’s software) what it can do is extraordinary. While it cannot think, it can mimic thinking. It will be the most unbelievable value creation product that I have been apart of in my life.
Businesses and entrepreneurs that can utilize it the best, the fastest will be the most successful in their respective fields. That is a guarantee.
Space race
The US (spaceX, rocketlab etc) have completely dominated the space industry now. While nowhere near as valuable as the current tech conglomerates, I think space will be the next frontier of wealth creation, in which the US still dominates in that field. Which is another bulwark backstopping the Dollar.
Conclusion
Hopefully you have enjoyed my update on Tech Dollar, and my thoughts about what is happening and what may be coming. I have a large backlog of articles that I have finished that will be published soon, so stay tuned.
Much love everyone!
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Great read, Dan. Quick comment: Specifically Brazil, I think its more likely that it will gravitate towards the West as brazilians see themselves as westerners. Brazilian involvement with BRICS today is justified by the Workers Party governments historically aligned with a 20th century anti-americanism that is losing steam overtime. I don't see it in 5 years or after Lula's government. So I would add them in the swing states as well. Of course, Brazil is probably not as important as others in the equation though.
Another great read, glad to see you back writing and active on Twitter. So what would an ideal portfolio look like based off this investment thesis? Obviously heavy in Apple and Microsoft, some in Google. Is it too late to the game to get into Nvidia?
Great post, Dan. It’s good for us to keep our eye on the big picture seismic shifts to come in our world, rather than getting bogged down in the immaterial
Fantastic read. My biggest disagreement is on “And should the US dollar become a drain on [corporate sovereign’s] operations, beware, for they will act in their own best interests. Should they leave the dollar system, that is what is sustaining US economic power, this is the only thing that would cause real seismic shifts, and it may happen if they seek to become and assert pseudo sovereign status.”
IMO it would be pretty difficult & unexpected for US-based tech companies to abandon USD in lieu of their American employees. I doubt it would be a popular choice, like return to office
This is a great breakdown of the strange place that the USA finds itself in today: institutions breaking down but, energy independent and the private sector (and a handful of states) incredibly strong and resilient.
Great read, Dan. Quick comment: Specifically Brazil, I think its more likely that it will gravitate towards the West as brazilians see themselves as westerners. Brazilian involvement with BRICS today is justified by the Workers Party governments historically aligned with a 20th century anti-americanism that is losing steam overtime. I don't see it in 5 years or after Lula's government. So I would add them in the swing states as well. Of course, Brazil is probably not as important as others in the equation though.
Another great read, glad to see you back writing and active on Twitter. So what would an ideal portfolio look like based off this investment thesis? Obviously heavy in Apple and Microsoft, some in Google. Is it too late to the game to get into Nvidia?
This was a great read.
Great post, Dan. It’s good for us to keep our eye on the big picture seismic shifts to come in our world, rather than getting bogged down in the immaterial
Thank you Dan for this great writeup. Your lucid writing has given structure to a lot of my (similar) thoughts on this topic.
Excellent essay. I’m glad Hoe Math introduced me to your work. Very much first principles, which reminds me of Micheal Pettis, in a good way.
Fantastic read. My biggest disagreement is on “And should the US dollar become a drain on [corporate sovereign’s] operations, beware, for they will act in their own best interests. Should they leave the dollar system, that is what is sustaining US economic power, this is the only thing that would cause real seismic shifts, and it may happen if they seek to become and assert pseudo sovereign status.”
IMO it would be pretty difficult & unexpected for US-based tech companies to abandon USD in lieu of their American employees. I doubt it would be a popular choice, like return to office
This is a great breakdown of the strange place that the USA finds itself in today: institutions breaking down but, energy independent and the private sector (and a handful of states) incredibly strong and resilient.
Ps mass influx coming due to the Naval retweet :)