Yat, welcome to the Network State podcast. I'm glad to have you here.
Thank you for having me. It's a great honor to be here and excited about our conversation.
Awesome. And for those people who don't know, just give me the quick background on Animoca. You're a large investor, you're gaming, you do all kinds of stuff. Give me the Yat on Yat.
Yeah, the quick snapshot is Animoca today is probably one of the biggest investors in Web3, particularly in the altcoin segment. Of course, we have a lot of Bitcoin as well. We have over 600 portfolio companies to date. We started with gaming, that's what we're known for, but we're in AI and DePIN and all sorts of things at L1s and L2s as well. We very much believe in this construct of the shared network effect, which is why we invest so broadly in the space. But where we're a little different is that we're not a fund. We invest out of our own balance sheet.
Oh, interesting. And what did you start as?
Where did the balance sheet come from? Like Google, for example, funds Google Ventures out of it.
We're a gaming company. We're still a game company. We drive revenue from that. We were once a small listed company in Australia and we raised capital for some of our first acquisitions, like The Sandbox, or investments instead of Axie Infinity. That took off a lot back in the '21, '22 sort of NFT, Ethereum peak days, which hopefully will come soon again, at least on the Ethereum side. We obviously monetized that, continued to invest and grow the ecosystem, and we believe in that. I think the other thing is that we are now also operating in the space. Beyond being an investor from our own balance sheet, we also create yield from the assets. We're basically trading, and we're also helping companies launch their tokens, doing an advisory type business. So it's expanded a lot more from that. We're almost a thousand people worldwide, so we're not a small operation in the crypto context. Last year we had over $300 billion of revenue with about $95 million EBITDA operating wise, and we're sitting on billions of dollars of mostly altcoin assets and a healthy chunk of Bitcoin.
Very impressive. One thing that I think makes it even more impressive is that gaming has always seemed to me to be very hard. First, it's creative, like writing a hit novel or making a hit movie. You can't order a hit movie on command. And especially a hit movie that stands the test of time is even harder. You might get a spike for a game and then people get tired of it. Number two, it's technically hard. People might have patience with a SaaS interface, but everything needs to be AAA for an AAA game. A friend of mine talked about the Silicon Valley way of building user interfaces with HTML, JavaScript, CSS, which has long page load times, versus the OpenGL or 3D graphics way with Unity or Unreal. That way of building interfaces is vastly more responsive and rich. There's an enormous gap between how we build business interfaces and that alien technology. Figma used WebGL in the browser, which is a big part of how they did what they did, but it's also why it takes a long time to load. Figma shows what's possible with gaming. Now, of course, we have AAA desktop games and mobile games, but mobile games still have the mechanical and creative issues I mentioned.
Yes, that's right. But just to encapsulate, as we were and still are building games, one of the big misunderstandings is that you have to have super high quality. It's like saying a good movie has special effects. It does, but not necessarily. A good game is actually based on the content. One of the big misnomers is that they treat it like a movie, as an episodic experience. That has a lot to do with the history of gaming, which was very episodic, like casual gaming or storytelling-based games, because you couldn't do multiplayer gaming.
No, what I mean is an alternative to the episodic storytelling games with the casual games you just pick up and start playing.
Yes, exactly. But what makes gaming so different from something hit-driven is that most people play games for social reasons. When you watch a movie, you watch it once, maybe there's a social thing, but the social interaction isn't as bound. In gaming, we have Bartle's taxonomy, which divides gamers into four categories. The first is killers, about 1%, who play games because they like to off people. Then you have achievers and adventurers. Achievers want to collect all the badges. Adventurers want to see the whole game and experience it for the love of the experience. The fourth group is socializers, and they are 80%. The perfect example is Roblox. When you ask kids who play Roblox if they play for adventure, killing, or leveling up, they'll tell you it's because their friends are playing it.
It's funny. As a kid, I definitely played a lot of games, and I stopped playing games because of an investment into Final Fantasy 16 or whatever. It's a solid 80 hours of waking time, a single-player game. But in the multiplayer games like GoldenEye or Quake, it was fun. But I think there are so many games now that they all blend into each other. Back in the '80s or '90s, it was harder to get a game out, so there was more editorial control. The cost was hard, so you had genuine originals like Zelda, Metroid, Final Fantasy, Dragon Warrior, Castlevania. Those are still flagship titles today. But the sheer crush of titles out there is why I'm impressed with how you built an enduring business. You've gotten into other areas in Web3 and crypto, but is Angry Birds still doing well?
Well, no, but that's because Rovio sold itself to build a franchise.
Fine, but it's hard to make a repeatable hit. I think there are a lot of parallels when you think about the roots of crypto and gaming, because gaming audiences ultimately build a brand and become a media company. At the foundational level of a lot of crypto, including Bitcoin, it's tribal, a kind of belief system first.
I see. So let me see if I get your point. You're saying retention in a game is about retention of the social network underpinning the game.
Okay, that gives a good thesis. But then what happens is you start off by creating a following and a community. With Final Fantasy, you've got a whole generation who grew up with it and will keep playing it. It's the franchise value. You see the same in the movie industry. But they haven't yet created a social network out of it. They do have Final Fantasy Online, but that hasn't done nearly as well. Frankly, the social networks of these gaming communities have been co-opted by platforms like Steam and Discord. They captured it and became the agents of distribution. It's interesting, it's like Uber commoditizing cars. Car companies spent so much energy differentiating, but the last time you took an Uber, do you remember the make of the car?
No. What you remember is you took an Uber or a Grab. That's what TikTok is doing for creators. You remember TikTok, but the creator themselves become like channel flipping. It's interesting because you always recentralize around something because you can't remember everything. The fix point is TikTok, Uber, or Steam, as opposed to the content, the car, or the gaming creator. It's where your prime identity lies. If your ranking is on Steam, you care about that ranking over time, as opposed to the ranking being only in one game. It may not transfer to another game, so it's not as valuable unless you have a following over generations. Final Fantasy has the benefit of being a franchise since we were kids. That's something embedded in us for decades. But if you're a new franchise, you really have to understand how to utilize the power of these social networks and build community constructs, which is no different than launching a token.
Right. So it took me a long time to understand this quantitatively. My view is that people speak at an abstract level about brand. Eventually, I was able to articulate that a brand is the collection of words and images that are evoked when someone says that phrase.
And feelings. Great. Okay, so again, very left-brain of me.
Exactly. You're right. Feelings. What are those? So we're not all computational, despite what some people might think.
Exactly. So with LLMs, you can make that very clear today. You could type in a string like Coke or Pepsi, pull up sentiment analysis over time, and also pull up every word, phrase, image associated with that person, place, or thing, and score them for positive or negative sentiment. You can realize that brand is just about the media you consume, the atomic linkages to other words, images, and feelings. So it's interesting to think about Disney or Final Fantasy, which have built brand value over decades. What is different about that? First, they were able to build it over a period with a less competitive media environment. But it is possible to build brands today, and in some ways faster than ever. Brian Johnson has built a brand very quickly with 'Don't Die' and living forever. YouTube and TikTok came up like that. But if you look at YouTube, is it YouTube or the content that gave you that impression?
Well, it's YouTube.com, TikTok.com, Snapchat. It's not easy to build these giant multinational tech platforms, but it's possible. In some ways, it's easier to do so than to retain an old brand. One thing that's been interesting is seeing the World Economic Forum radically decline in prestige. It went from something spoken of with a positive, elite connotation in the '90s or 2000s to something where Time and Newsweek themselves fell off. The things they would praise are now attacked by an enormous groundswell. But it's also related to the distrust in institutions that has happened over time.
That's right. But because of that, things like Final Fantasy or Zelda are outside of those distrusted institutions because they're games, nostalgic products. In some ways, their brand value is going up even as the institutions that existed then go down. So talking about brand, the way we think about brand and the power of brands, in a commercial construct you might call it goodwill. As humans, we are guided by emotions and feelings. That network effect of saying something you love is the most powerful thing.
So when you love and have passion for something, whether it's a green movement or a cosmetic, to build a brand is the feeling it evokes in you. An example I can give is, do you remember your favorite childhood food?
That's a good question. Pineapple.
Pineapple. Okay. When you eat a pineapple today, does it give you that feeling, that emotion from childhood?
Yeah, senses and smells and tastes.
Yes. There's something interesting about what you're saying there, because that's also the stuff you can't put online yet. It's what makes us human, part of our psyche and psychology.
Right. Sights and sounds you can put online, the eyes and the ears. Touch, you've got haptic stuff, but it's slow to get there. Apple just released that movie that's like a rumble movie. It's interesting technically because it's a movie about cars, and you're supposed to hold it and it rumbles when the car moves. I thought it was a gimmick, but it's actually kind of interesting because it's like a third track. When you're editing a video, you've got the video track, the audio track, and now the haptics track. It starts off as a dumb thing like the magnitude of the rumble strip, but eventually it could be your omnidirectional treadmill or massage chair, or maybe your Neuralink. But sending signals in is hard. Coming to your point, sights and smells are hard to do online, so they're an interesting complement to the digital. This is why maybe some of the French perfume companies may do well. What is a complement to the digital is something I think a lot about.
Yeah. When you think about Jung's archetypes, the reason people talk about them and use them in storytelling is because whether it's a hero archetype or a savior archetype, it's a story so embedded in us from childhood that when you retell that arc, it works. We keep rebuilding these stories in real life, making them into heroes or villains. It's the feelings they invoke, deeply embedded within us. When you build a brand, it's about how you create that feeling. Look at Nike. They say 'Just do it.' It's a feeling that you can do it, that you can achieve. When they show a successful athlete running with the shoes, it's not that I will physically run better, it's the feeling of running faster even if you're not. The utility difference between an Adidas shoe, a Nike shoe, or an On shoe is minimal for most of us, yet we choose it because of how it makes us feel. That's the power of brand.
Absolutely. There's a metarational thing where why does somebody buy the product that's advertised? If they can afford the money to advertise, they probably have higher production values and attention to detail. It's a correlative argument that if they can pull off this polished ad, they probably have attention to detail on the physical product. That's not always true, but it's a more rational way of explaining it.
It also depends on what you value. I grew up in Austria in the '70s, and we never spoke about money. In contrast to Dubai, Hong Kong, or Singapore, where you talk about real estate and the stock market, in Europe they talk about food, philosophy, and culture. They don't talk about money because it's not a construct you share, so it's not valued as much. It's like in academia, where we talked about papers, graphs, charts, findings, knowledge, and research. These aren't traditionally looked at in terms of capital, although they are capital too. Money created a way to quantify your status. Being a millionaire gives you a certain status, which has more meaning in Hong Kong or the US than in Europe. As a result, people think more about the value of a brand's mission in some countries versus others where they just ask if it's cheaper or better. There's a triple bottom line effect depending on societal circumstances. In China, it wasn't a good luxury market at first because everyone was surviving. When the middle class rose, everyone started buying luxury goods, not just because of brand marketing, but as a form of projecting newfound power and feeling better about themselves. It became self-reinforcing.
Yeah, that's right. When you and I were growing up, there was no obvious path like 'write some code, start a company, get venture capital.' Our parents' generation came from a time of true scarcity, worrying about food on the table. That's not something we care about today. The notion that you can't put food on the table for most people is simply not true anymore.
Yeah. People don't get how much the world has changed in 50 years.
Yeah. I would argue it's changed a lot more in the last few decades than it did before. There was a degree of freezing in amber that is now coming uncracked very rapidly. The speed of political and technological change is accelerating. There are many different kinds of exponentials: crypto, AI, biotech, drones, robotics, self-driving humanoids. Jordan Peterson observed that Tinder alone is an enormous disruption to how humans interact. There's a graph that shows how people met their partners, and the internet dominates everything.
I remember back in the '90s, meeting people virtually and then in real life was a big deal. Now it's push a button.
Yeah. When all the friction is removed, another layer gets recentralized and added. The internet liquefied all kinds of previous structures. Nothing that wasn't built on the internet will survive the internet. The internet increases variance on everything. It takes you from a 9-to-5 salaryman to a billionaire or out of work. It takes you from the 30-minute sitcom to the 30-second clip or the 30-episode podcast. It takes you from a newspaper article to a 140-character tweet or a giant PDF. It does this by eliminating the mediator, the moderator, the middleman, allowing people to connect peer-to-peer.
It makes it more efficient.
More efficient, but it also removes all choke points, centralization, and moderation. Anybody can now yell at anybody with nobody in the middle to break it up. Anybody can trade with anybody with no one to tax it. Anybody can interact with anybody across borders. The entire world, which had been bucketed into countries, is now teleported into the cloud. It's like 8 billion people dropped into a massively online battle arena called the internet. China has its own continent with the Great Firewall, but people can still come in and out. The other 6 billion people on the Anglophone internet are all directly connected. The geography of the cloud is different from the geography of the land. The natural boundaries are languages, networks, and firewalls. On the English internet, you have Americans, Indians, Europeans, all packed into one place digitally. It's an absolute melee and free-for-all because nobody knows who's in charge. Is it the platforms, the government, or nobody because it's cryptocurrency? That order is being worked out now. 20 or 30 years from now, I think digital borders and physical borders will coincide.
It's happening. China is the forerunner of this. Look at the Chinese overseas population, which is larger than the population of France. The Indian expat community is huge too. In Dubai, it may as well be India. People move and bring their culture with them. That doesn't disappear despite the global internet. It allows people to connect with certain interests from their societies. I see pockets of nationalism or patriotism. I grew up as a third culture kid in Austria, but now everyone is a third culture kid because we're all connected. I could be a national of Austria but have affinity to Chinese culture or love Japanese anime. Society is struggling with that divergence and diversity because we don't have the traditional power structures to hold it together. Those structures were education, centralization, your passport, your identity. But because of what you described and media at large, we've fragmented that open. That actually makes me more bullish on America.
Yes. When I compare to other nation states, very few countries can survive this mass diversity and creative destruction as America has, because it's done it for hundreds of years. It's a nation of immigrants. America is the only place where you can have this creative destruction that upheaves entire industries, which wouldn't be allowed in Europe. China is responding to what's happening in America. People talk about China being ahead in AI, but that's a response to America suddenly leading with OpenAI. Before that, it was all about China's surveillance state and data control. Then America came with something disruptive, highly creative but also destructive. China had to respond. I think America is probably the only place that can do that, not counting small city-states.
Let me disagree with you and explain why. I think talking about America as a unitary entity today is like talking about Korea. North Korea and South Korea exist, but Korea doesn't. When I say Americans, I mean the United States, but it's the disunited states. There's no America, only blue America, red America, and tech America. Blue states and red states have separate territories, and the level of polarization is widening. Only 4% of Democrats marry Republicans. They don't socialize with each other. Starting in 2020, Republicans went to Gab and Truth Social, and Democrats went to Blue Sky, Threads, and TikTok. The center has smashed into pieces. Elon's acquisition of Twitter was a Tower of Babel moment. The old center of the English internet doesn't exist anymore. You have X, Gab, Truth, Farcaster, Nostr, Bluesky, Mastodon, and TikTok. The digital secession has already happened. Blues and reds have split apart. Tech Americans are a third group, maybe 5 or 10%, who can ride the lightning because startups are chaos. But let me ask you, what is America minus the internet?
What is America minus the internet?
No. But I also think the internet needed America at the start. It pushed it forward, and everyone had to adopt it because of America.
Totally. But I'd say the internet is to America as America was to Britain. Britain obviously owes a debt to America in many ways, but America's culture was a fork of Britain.
Still maintain the English language.
Exactly. All kinds of things. And they have a sympathy for Britain. They're not anti-Britain, right? But they're 10x the scale of Britain. They're more progressive and more libertarian, more right. And the internet is to America as America is to Britain where it's like 10x the scale.
But do you think America is not going to be America? Maybe America might not be America in the physical sense, but I think America as the idea.
Well, that's what the internet is. Exactly. So basically what MAGA and what is happening now in the US is MAGA has China envy. They don't admit it, right? I'll show you two graphs. Okay.
Let's see it. All right. This graph shows, let me just back up for a second. Imagine not a two-faction model of blue red or America China, but a four-faction model of blue America, red America, China, and the internet. This first graph shows that in the year 2010, essentially, Google and Facebook disrupted legacy media. They were at 60 billion something revenue even to the mid-200s and they plummeted to like 16 billion revenue, a 75% drop in like four, five, six years. And the internet went vertical. So the internet disrupted blue America right around 2010. At the same time in a different theater of this giant social war, you see China disrupting US manufacturing. The colors are reversed but basically this is China disrupting red America. So red America, in the same time that blue America is losing to the internet, red America is losing to China. The response to this, you've heard the saying maybe sometimes like go woke, go broke. But actually what happened was go broke, go broke. First, blue America lost all this money. Then they politically radicalized as a consequence and they started fighting a two-front war where there was the anti-tech lash which started in 2013. And then there was the wokeness which was an attack on red America because their pie was shrinking and they wanted to take back the pies from these two guys, the red and internet factions that had taken their pie away.
Red America felt the exact same feeling because they were under attack from China, economic attack.
And they responded with Trump and Trump was both a fight against blue America and the trade war was versus China. So you actually have a bar brawl with the internet, blue America, red America and China. The internet and China in the mid-2010s were sort of taken aback because the internet thought of themselves as Democrats and China thought of themselves as working collaboratively with US manufacturing because all those CEOs had moved the stuff overseas. They were their trade partners and they were working hard for them. So the internet and China were taken aback in the mid-2010s by all of this. At first they took huge hits. The internet faced all the censorship, attacks on CEOs over the second half of the 2010s, like Travis Kalanick getting pushed out of Uber. It didn't make as much headlines in the Anglophone world, but the trade war was a huge thing in China. Lots of companies had their IPOs crushed. But then after 2020, 2021, the tide turned. The internet after 2022 really went on offense. China went on offense. China started shipping cars and they flipped everybody worldwide. They took all these hits, then they figured it out and now only 15% of the revenue comes from the US and they just went to a completely new gear after 2022. Similar to the internet had taken all these hits and they figured out a new gear. Elon acquired Twitter and we pushed with All-In and all these kinds of things, the pirate wires, all the tech media, but really more of a business among tech just pushing in and actually, okay, you're fighting, we're going to fight. In fighting, there was a victory. The internet's victory over blue America is kind of obvious at this point. China's victory over red America is obvious in China or anybody who's looking at graphs. Yet there's still a rear guard action. What Trump is doing with the tariffs is mirrored by what blue America is doing with less fanfare. Blue America has all these unions at media corporations that are anti-AI. They're trying both to maintain a protectionist thing and protect what money they have against this internet and China wave. But the problem is that all media is going to be AI and all money is going to crypto. So the last strongholds of blue will fall and all manufacturing is coming robots and all military is coming drones and that's where China's totally dominant. Red America is trying something there. I think there'll be something that comes out of that. They're at least more productive. Blue America is just purely defensive. There's at least some attempt by the tech guys, which is different than the reds, to try to build American dynamism. Nevertheless, that is not price competitive on global markets with Chinese manufacturing because of the sheer scale of what China is and the expertise they have built over time.
There's like 1.4, 24 billion Chinese people and 77 million magazines exported to every country in the world and China has the insane price competitiveness required to make a profit in Nigeria and Brazil and all these kinds of places. So they've got all their numbers completely dialed in. The physical world is made in China and the digital world is made in the internet. My analogy is to Europe in the early 1900s. Europe in the early 1900s was the center of the world. You had Britain, France, and Germany. This is where culture was. All the Nobel prizes were there. And you had these barbarian powers on either side, America and Russia. These were the ones that had the growth rate, the biggest populations. They were barbarians in some way, not considered the center of culture. But what happened was Europe, after a lot of fighting, inwardly collapsed. It went to socialism, debilitating wars, internal wars. And it ended up being split down the middle between America and Russia, between American capitalism and Soviet communism. I think that's happening again today. In the early 2000s, America was the center of the world. After winning the Cold War, it was the center of everything. Democrats and Republicans had nobody to fight to unite against.
Exactly. So they just started fighting each other even more aggressively.
And then the two barbarian powers on either side were the internet and China. These had the growth rates. Billions of users. The growth rate of China, I don't have to tell you the last 15 years. It's insane. But in a sense, they're both invisible. To an American, the internet's intangible and China's overseas. So these growth rates, as crazy as they are, were also invisible. I have to still even today persuade people of how important the internet is or how big Chinese manufacturing is. It's simply not part of the equation that they're thinking about.
They can only perceive it through graphs and charts.
You and I have been part of enough tech companies and seen enough projects that we viscerally understand. Even a lot of tech guys don't understand the sheer scale of what the internet is until you're at a giant tech conference where you've materialized all those people into the physical world. We see a number on the screen but you don't perceive it. There's this great post by Lime visualizing crowd sizes. Like this is 50 people, this is 100, this is 150, 250. There comes a point where it's hard to perceive.
10,000 people in one place is like a stadium, 20,000. It also feels impersonal because you can't relate to the dynamic sometimes.
So here's my point. This is what 108,000 people looks like. I have like 1.1 million followers on X. That's about five or six times this number. So sometimes before I go to tweet, I visualize going to the center of the star-spangled, the center of a Sam, rockstar. Kind of like that. Like the NFL, you say, 'Oh, say can you see?' Before someone gives the national anthem at the center of a giant sports event, there's like 20,000 people and if you've got one note off, everybody hears it. So when you before you go to tweet, when you actually see this, you're like, 'Oh, that's what 180,000 views means.' With Twitter or X, if you refresh it, you will actually see the page view count go up. There's one of the very few scenes in movies that have depicted this. In The Social Network movie, there's a scene at the beginning with Face Mash where it shows a bunch of people all looking at the same screen but in different rooms. You don't perceive that as an individual because you need to have simultaneous cameras in hundreds of thousands of different rooms to see all these people refreshing the phone at the same time. If you actually saw the clip of 180,000 people seeing the tweet and some guy is after a workout, somebody's on a plane, someone's in the desert, just that alone is an interesting premise for a short clip. Maybe I should do that. The point is the internet, despite its enormous scale, is invisible in a sense, and China, despite its enormous scale, is invisible in a sense. These barbarian powers have been growing. In my view, the enemy of my enemy is a friend. I'm seeing the Democrats will eventually side with Chinese communists. That's why Newsom has gone to China and said he wants to be China's long-term stable and strong partner.
Wow, I didn't see that. That's insane. I'm obviously not the heart of American politics, but this idea that Newsom is actually doing this would be quite surprising to me.
This was the whole thing in Shininoa. Welcome more nuisance news to come.
But how much of this is Shininoa saying it versus actually what?
This is his quote. He's willing to be China's long-term stable and strong partner.
A lot of people might just say that but would they actually mean it? Politics is sometimes well, you know.
I know, but basically snake in the room.
Newsom welcomed Xi also out to San Francisco. He cleaned up the streets for him. So if you remember that, this was the other part of it. He had a whole visit because Xi could recognize Newsom as also being the governor of a large state that becomes the president, a path that Xi could recognize as similar to him. This meeting happened in 2023 where people thought Newsom could maybe become president because there was going to be a jump ball after Biden stepped down. Everybody knew Biden was going to step down. The funny thing about it is it wasn't a Biden conspiracy theory. The reason is different factions of the Democrat party thought each of them would win the hot swap. Was it going to be Michelle Obama? Newsom probably thought he was going to win the hot swap. He took a whole meeting right after the thing, but it went to Kamala. What's my point? Newsom also Tim Walz has basically said China should intervene on the Iran thing. In many ways, Democrats are much more sympathetic to China than Republicans are, just like Republicans are more sympathetic to Russia historically. I think Democrats will end up aligning with Chinese communists because if they don't have DC, they need China. That's how Newsom is going to think about it. I would not be surprised to see them essentially not enforce the tariffs in Oregon, Washington, California, the West Coast states. If the tariffs really contribute to inflation, they may simply not enforce them. Especially because the Chinese tariffs keep getting suspended. They might go real.
There's a possibility for a left populism where they just don't enforce the tariffs and then they invite a confrontation on that.
I think it's very possible. That's the kind of thing which is federal versus state, who has control. This is similar to the federal versus state on the border, but in reverse. These are now the Democrats want the packages to come in, as opposed to Republicans wanting the people to stay out. Then the other side of that is Republicans and the internet. One way of thinking about this is from 2020 to 2025, especially 2024, Democrats really did fight China pretty hard. But then eventually they're now in the 'can't beat them, join them' mode. I think by 2030 they will link up with them completely.
Don't you think that politically, at least the impression we have, I'm all for more collaboration between countries because I think more confrontation is bad and also I think it's inevitable. The more the US can integrate and work with China and vice versa, there becomes more coincidence between them.
Yes. But the US doesn't exist. Red America and blue America have different foreign policies.
Different foreign policies, I understand. But generally speaking, when there's jobs and there's money, broad level, should we try to get there? But I think for the time being, from the lens being in Hong Kong and by extension China, we view neither Democrats nor Republicans as being pro-China. That sounds to me as a bipartisan thing which is a bit of a shame. I think China is responding at the moment politically, including in the area of crypto regulations like with the stablecoin in Hong Kong with the HKMA. Basically it's a response to America as a whole, not specifically to MAGA America, but generally to how do we make sure that we protect what we have.
Totally. But I'd say that while we're in a time of transition where the tectonic plates are moving, there's a number of reasons why Democrats will link up with Chinese communists.
I'm not as familiar with that, so it's hard for me to comment. But this idea that an American faction would actually side with China sounds almost as big as when people were saying Trump is siding with Russia.
Yes. Trump with Elon. Trump with basically, Xi is as big a realignment as Trump and Elon.
Exactly. Remember Elon, Trump was like, 'Oh, Elon should get on his knees and beg' in the first administration. Then obviously they were the bestest friends ever for like two, three years. And now they're out again, unfortunately. That was something.
It's politics. But it reminds me of World War II and how the Nazis and the Soviets were actually allied at the beginning to invade Poland together. Then the Soviets and the Americans were allied to beat the Nazis. And the Soviets and the Americans split the Germans, East and West Germany. All three factions existed. Germany plus Russia against everybody, Russia plus America against Germany, and then half the Germans and Americans and half the Germans and Russians against each other. All three permutations happened. My view is Democrats align with Chinese communists and Republicans become Bitcoin maximalists. That's the other piece of it. We're still in the middle of this transition.
What you're saying is that America will essentially no longer be a country.
Well, a country is a geography with borders and a government. But to me, a country is representative by its people. One could say what those people do, are we saying it's two Americas or still one America under one hub? The federal construct allows for different opinions and ideas to exist within a common federal structure, whereas the states themselves are different. It doesn't mean that states have more freedoms as a result. There's different ways it can break down. It's possible that it follows the USSR where administrative boundaries for the socialist republic suddenly became real. Those fake administrative boundaries became real because they were something that everybody could agree existed beforehand. You saw this during COVID, there were hard borders between Rhode Island and New York. People were not able to just go back and forth because of COVID borders.
The collapse of the Soviet Union was essentially one that the Soviet Union simply couldn't sustain itself anymore. I think the interdependence and relationships that you have, the one difference about a communist planned economy, when I grew up in Europe at the time I witnessed that to some extent, is that planned economies have centers because there's a country that's dictating what you do, where you do, how you do it. So this place makes coal, that place this kind of stuff, checkpoints targeting out-of-state residents. So I understand the restrictions in the borders.
I'm saying Rhode Island pulled over New Yorkers to keep the virus at bay. The point being that the existing administrative boundary that people could coordinate on, even if it was completely uncorrelated with the virus, they established borders on that basis. 2008 was a dress rehearsal for 2020, 2020 was a dress rehearsal for 2030.
I would disagree with you. The reason I disagree is because when you look at what happened with the fall of the USSR, the planned economy construct forced the breakup somewhat easier because you didn't have true interdependence. There was no decentralized economy that existed inside USSR versus America, which because of its nature is very international and global, but there are many more ties and connections between them.
What I'm saying is that while politically and ideologically there could be parts that would fall apart in America, we can see this right now. I think the business construct and the transactional elements of doing business together is what ties it together. Inter-American trade won't fall apart.
I disagree with that too. Here's why. It took me a while to articulate this, but a deep point for me is that Keynesianism is communism but for wimps. Let me explain. If you seen the graph where it shows the US dollar's value fall, Keynesianism actually does seize 100% of the wealth of the country over time. It does seize 100% of the wealth of the country over time, but it doesn't go door-to-door with guys with guns like communism does. It's able to do it invisibly. When you issue another trillion dollars, it dilutes everybody down, every dollar holder down, but you don't have to go door-to-door. In the Soviet Union, they had to have Lenin send his crazy guys to every house. They would kick in the door, kill the father, rape the mother, take the son off to the gulag, and collectivize the farm. That's what collectivization meant. The same thing happened with Mao. Keynesianism innovated on that by stealing all this wealth by diluting people down. When you're running a cap table, you're highly sensitive to dilution because you actually can see the denominator. But there isn't a well-agreed upon denominator for how many dollars exist. The whole point of M0, M1, M2 is to make it complicated and abstract. How many dollars are there? Who knows? Let's do another trillion.
But Keynesianism doesn't violate the construct of property rights in the same way.
It does because on money but not on assets.
You're still seizing the assets. You're seizing the money but the assets are yours and therefore the assets do inflate because more money is put into the system. The other thing on Keynesianism, independent of it, there's a philosophical construct which is interesting. Politicians have become addicted to the idea of QE without actually doing the fiscal discipline of pulling back. Keynesianism was trying to add liquidity to a market to generate activity.
I want to show you something because it pulls the pieces together. This is a piece from 2010, 'How to Spend 1.25 Trillion.' These are two people at the New York Fed. It says the Fed decided to buy 1.25 trillion in mortgage-backed bonds. This is the connection between currency and assets because you print the currency, they can buy the assets.
But they're doing this to protect a base of people.
In my view, they diluted down all Americans and the world to prop up the banks. Somebody actually go buy all these mortgages. How'd they do it? This was really interesting. It's possible I was buying the mortgage on my own house, says this guy. In the end, they came very close to target. They were 61 cents short. They bought one trillion, $249 billion, 999 million, 999,999, 39 cents. The Fed was able to spend so much money so quickly because there's a unique power to create money out of thin air. This is an unusually clear statement of what the actual US government is, which is like communism where they can just seize any asset by printing money. They're buying the mortgages. It is centrally planned. 1.25 trillion. There's no max tax. There might be a minimum wage but there's no max tax. Just to think about what that means. That's a thousand iPhones for a billion people in China.
But they did end up buying it, but then over time they basically sold it back, was it?
They haven't actually completely offloaded all their assets.
But they have offloaded. The point is the government seized it.
When they seized it, they seized it to rescue it rather than to seize it as a means of control, which I think is a difference between the two.
First of all, you're agreeing that they had good intentions. If you actually go to what caused the mortgage crisis in the first place, it was the government forcing many banks to extend mortgages to people who couldn't afford it. The anti-redlining stuff. They forced mortgages onto black people, Hispanic people. Even NT admitted this in the Bush era. But it also fueled a housing bubble. This was both a Bush and a Clinton thing. There's something called the CRA, Community Reinvestment Act. If you trace it back, the government forced the banks to make these mortgages. Then when it crashed the economy, they said, 'Oh, we're coming in to save it.' The state causes the problem. It's like a firefighter who's also an arsonist. They cause the blaze and then everybody's confused about what caused the blaze. A firefighter comes in, sprays like this, and then they increase the firefighter budget as well. Why did they have to save the world? Because they destroyed the world. The net effect at a meta-organism level was upward redistribution of wealth. They printed the money, diluted down everybody else, and bought up the banks and the mortgages. Who got diluted down? I'll show you another graph.
Unfortunately, inflation hurts the weakest.
Exactly. I'll show you this really amazing graph. Let me see if I can share the screen. So did Republicans pay for 2008? Let me show you this graphic and explain what it is. There's an animated version of it too. Let me zoom. This shows each dot there is a county. This is the GDP of that county. This is a poor county down here and a rich county up here. The blues are Democrat voting counties and the reds are Republican voting counties. Assume they don't flip sides at this point. In the year 2008, this solid line over there, that envelope, you can see that the blue envelope and the red envelope are roughly the same. But by 2018, you can see that all the richest districts are blue.
We can see this already when you look at right now, people look at the blues as the party of the elite.
That happened from 2008 to 2018. In that 10-year window, Democrat counties and Republican counties were at par to suddenly blues pulling way ahead like this. How did they pull way ahead? I argue it's because that was the time of the Obama administration. All the printed money was being allocated. Where did it go? It went mostly to blue connected states and institutions. It went to banks in New York. It went to DC.
How much of that would you say is related to the growing tech wealth that happened during that period?
A small slice of it. All VC is like 10 billion, 20 billion a year. Relative to all the people who ended up working at Google with million dollar packages.
A small slice of the trillion for the mortgage-backed securities, less than 1%, made its way through the rivulets into a productive sector of the economy which is the tech economy. A relatively small amount of money on that very fertile field went like this. That led to the growth of tech. Another piece of it was the crash led to huge price pressure, so it also led to the growth of China. China and the internet both were the strongest, most supple, resilient. They were the ones who were actually able to benefit from this even if they weren't next to the money printer directly. One other thing that happened is it wasn't cost-free. That inflation was exported, for example, to the Middle East, helping trigger the Arab Spring. Those countries were just in chaos, civil war. In a sense, they paid for the bailouts. These countries got diluted down, their food prices got spiked, they got pushed into civil war. Why? Because it got printed down. There's no blockchain, so it's hard to prove this. I can only show a series of events. Some assumptions, but basically the theory around it. If the food price spikes helped, why did those prices spike then? Because the inflation was exported. These countries were already near the border of survival.
One of the reasons why countries like China are very sensitive to food prices and management. I think one of the best examples of a super stable society despite the fact that economically on a global parity wealth probably has suffered a lot is Japan. When you go to slightly out of Tokyo, but even within Tokyo, I'm always fascinated how I can buy in all those vending machines for the same amount of yen, the same drink that I could pay for 20 years ago, the same price.
They were the masters of QE if you think about it.
They've done it for a long time. I come down to the thinking of why did they do it and they tried to keep the cohesion and stability of a nation. Let me counter argue. I want to bounce the ball back. My view is as follows. Japan was actually doing really well against America in the 80s. But America had, at a certain point, you can rise to a certain point within the system but then you have to become the system. Japan was rising to a certain point within the system and it hit a ceiling where it was getting too big for its bridges and becoming so successful that the US had rising sun, all this anti-Japanese sentiment. The US government actually killed the Japanese economy with the Plaza Accords. Japan was forced to not use its yen to buy up valuable factories in the US. It had to buy treasuries. A lot of IP was transferred from Japan to America, in reverse from how people think about it. Fundamentally, that blocked the rise of Japan Inc. and resubjugated them. Japan and Europe, and Canada, until very recently, are US colonies. They have a US military base there. There's no Japanese military base in the US. This was a post-war construct. When some people say China will get, we stopped Japan's rise so America will stop China's rise, it's not the same. I can point to one article that shows that. The other thing is that Japan was dependent on American security. There's a different relationship between that versus what you see in China.
Exactly. When push comes to shove, the US had root over Japan but did not have root over China. One way of proving that is killing CIA informants, China US spying operations. That shows something that China could do that Japan could never do. Japan can never kill a US spy. If they can't kill a US spy, they can never have any communications that are genuinely encrypted and private in their country. China can actually have communications that are private within their country.
But how does that relate to the fact that Japan was doing QE?
I'll come to that in a second. Japan was essentially forced to buy treasuries and print as a way of crippling their economy. Their export machine was broken. They were not allowed to export. This is why Sony, Mitsubishi, all these things that were so amazing just suddenly fell off a cliff. Robert Lighthizer and other trade representatives restricted Japan. Michael Hudson writes about this. When they didn't have the export growth anymore, they had to do the fake growth of QE. Now that whole thing is breaking because you see Japanese yields just zooming. They're seeing that QE for that was a 10-year time bomb. They have demographic issues. I think this century Japan becomes a Chinese colony. History is running in reverse. Last century China became, this century Japan becomes a Chinese colony where Chinese people will be able to go into Japan, buy lots of property relatively cheaply, just like Indians are now buying a lot of property in reverse. A lot of things are happening with history in reverse. I can show a boomerang or a U-curve for many different phenomena. My point is that the Japanese have preserved some degree of stability in their society because they have homogeneity of culture, language, people. They're not going to melt down in the same way America is. America has 300 million guns, more guns than people. People are crazed on every dimension. There's gender, racial, ethnic, political, and even now age polarization because the young don't want to pay for the old for Social Security. That's just going to melt down. I really disagree with you. My biggest point of disagreement is you're correctly seeing tech America and tech America can ride the lightning, but most of America is not tech America and they are not rising with the internet and they're not rising with China.
You don't think tech America will try to save America? I do think there's a degree of...
