SHOCKING Truth: Why the AMERICAN DREAM is Over | Who Wins the Global Race Now? ft. Balaji Srinivasan

I'm moderately bullish on India and extremely bullish on India. It should recognize it's not going to square off militarily against China. It should also recognize it doesn't have the martial culture of a Russia. India should at all costs...

Sure.

Sure.

The thing to understand is that I think on balance from let's say at least 1945 to 1991 the US was on balance a force for good, which is to say of the US and the USSR. If you looked at the countries that the US backed, West Germany had a better standard of living than East Germany. South Korea had a better standard of living than North Korea. Chile had a better standard of living than Cuba and on down the list. In general, it was a win-win relationship where when you had free markets and capitalism and the western alignment, your society was better off and that also gave you the strength to resist communism. And what happened was by degrees after the end of the cold war in 1991, when the US became, it was at that moment that Charles Krauthammer wrote an essay called 'The Unipolar Moment'. And because 1991 was a very important year. It was the year the Soviet Union ended. It was the year that the internet actually had legal commercial traffic. So the NSF acceptable use policy was repealed. It was the year that India liberalized because of the balance of payments crisis and went towards capitalism. And it was also the year that actually Gulf War I happened or 1990 and 1991. That combination and basically the huge victory in Gulf War I had the Soviet Union basically just standing back from the whole thing and the US at the time under George HW Bush showed that it was a completely dominant military. The desert was completely different than the jungles of Vietnam. This sort of erased a decade of kind of malaise and so on and it was like wow the US military is just this global hyperpower everybody had underestimated.

And then, you know, over the 90s in general, America had a vacation from history. And at its zenith, the American Empire had not just beaten and flipped Germany and Japan. It had the Russians, the Chinese, the Iranians, Indians, all sending their elite in many cases to American schools to be educated, right, in the 90s, you know, to Harvard, to MIT, and so forth. This was a level of dominance that's basically unparalleled in history. Not even the Roman Empire at its peak. Not the British Empire at its peak. No empire had ever had that level of complete global and total dominance. So how do you have, you know, like if you've ever done a business deal of any kind to get 193 investors to sign a document is quite challenging. Okay, that's just a business deal. Now imagine it's 193 countries. Okay, that is the scale of diplomatic accomplishment of the American State Department over the 20th century. So at its zenith, the American left and the American right built the greatest empire of all time. The thing about all of this, once you kind of understand this broad sweep of history, there's a few more graphs. If you go to, there's a post I recently wrote called 'Zhao is wrong, China is strong.'

And essentially what it means, the post basically means this guy Peter Zeihan who he writes interesting books. I think the thrust of what he's saying is wrong. But I think the areas that he brings up for discussion are interesting. For years he's essentially been saying China's going to collapse and the US can blockade the Straits of Malacca. The US has a blue water navy and China doesn't. China's weak. China's importing all of its energy. China's fertility crash. Its population is going to zero. And what's going to happen is US is going to withdraw from the sea lanes. The world is going to collapse into chaos and anarchy, but we are energy independent and we're going to be at home and we don't need to maintain the order of the sea lanes anymore because the cold war is over. Right now, I do agree with some of this, which is to say that the US is going to retreat from the world, that the US did guard the sea lanes. And you know that these concepts are important. What I disagree is that this pullback of America is voluntary. I think why would America pull back if it didn't have to pull back, right?

And so now this brings us to American Empire, right? So I just kind of give a review of the things leading into 1991 and then the period from 1991 to September 10th, 2001. And during this period in America, it was a vacation from history. It was Seinfeld and Friends. It was music and movies and sports. And growing up in the 90s as I did in America, the least interesting thing in the world was politics. Nobody cared about politics. It was like talking about the bus schedule, right? Like it was a weird kind. It would be something where, you know, maybe there's somebody who's really interested in, I don't know, stamp collecting butterflies, right? That kind of person would be interested in politics. Nobody else really cared. It did not matter to the average person. And it was just like literally music, movies, sports, recreation, entertainment, having fun, maybe building a business in the 90s, you know, with the dotcoms and so on, right? And the biggest political issue was like Monica Lewinsky in 1998 or something like that, right? Do you know what that is?

Okay. Oh, yeah. It was simply not something where people cared that much. The main reason I say all this is American dominance of the level that Krauthammer wrote about in that essay 'The Unipolar Moment' is actually extremely unusual in history and even unusual for America. It's basically something which is a 1950 to 1991, arguably to 2001 kind of thing. It's an interregnum where like all these great civilizations, India, China, Russia, Iran, Germany, they're not meant to be this weak in history, right? Especially China, especially India, right? They were not this weak. If you go back and look at historical times, for most of human history, recorded history in the east, these were giga states, right? Or let's say mega states, millions and millions of people. Why could they support millions of people? Because they had huge complex economies. That's why Marco Polo sought out China. That's why Columbus risked his life to get to India. This is why there was rough military economic parity across the Eurasian continent. Why the Huns and Mongols could invade Europe? Why the Arabs could take Andalusia? Why did the Christians have to do the Crusades there? It was actually a military conflict. So, it wasn't just a total layup to conquer everything, right? And there's a graph that if you go to that post 'Zhao is wrong, China is strong' that actually shows that the world economy was based in Eurasia.

China's under communism, India socialist, Japan was nuked. Russia was nuked, not nuked but under communism. Eastern Europe was blown to smithereens by World War II. So only the US and Western Europe had any industrial base. That's why the rest of the world was third world, right? It wasn't like they were third world for all of history and so on and so forth.

The Qing dynasty actually was a really big thing in China for a long time, right? Like other cultures were not just total barbarians, you know, on their hands and knees. This is the mentality that many Americans have, many Westerners have, that these third world countries were always third world countries and that the West just got ahead of everybody. That's actually not the case. They kind of destroyed themselves with war and communism. Many of these things were things that were imported from the West, by the way. Communism was not indigenous to China. Socialism was not indigenous to India. Right? These were alien ideologies that were brought in that were not what the historical operating system was of those various cultures. Right? And so now if you take the top five economies, right? Top four economies by GDP PPP, China's number one, USA number two, India number three, Russia is actually number four by PPP, right? Purchasing power parity. And that's the World Bank's numbers, not my numbers. Okay? And so now the world economy has rocketed back out so that it's no longer majority western anymore. Right? This is actually the natural state of things. However, from peak America, this feels like a huge decline. So now this is the moment that we find ourselves at, right? Where by a number of numerical metrics, if you look at the G7 versus BRICS, if you look at where manufacturing is happening, right? China in particular is number one in steel and it's number one in ships and it's number one in cars, electric cars and it's number one in many, concrete and nuclear plants and a million other categories. But India by the way is a distant but real number two in many of these things. India is number two in concrete globally. India's number two in nuclear reactors under construction. You saw the new thorium thing, right? On many graphs China's here but India's here. It's a distant but real number two. India is going to flip the EU in electricity production. I know EU has a smaller population but still India is increasing in electric production.

So what that means is that the westerner or the American is experiencing, especially the American is experiencing two things at the same time. When their relative power is declining, they feel more economically strained, but they also are less able to coerce other groups which have now risen. So, they're feeling more powerless at home and more powerless abroad, which is causing them to flex whatever power they do have more and more and more aggressively. See, if you're at this totally dominant posture, you can afford to be generous because who cares? Give some aid, foreign aid to these third world beggars. You know, this is like the Mother Teresa kind of attitude, right? And you know, in general, I know there's some people who like Mother Teresa, but I always think that kind of thing looks at Indians as pawns, not peers, right? Like sympathy object, you know, for example, India did something a few years ago and Britain threatened to cut off foreign aid. I forget exactly what it was, but it threatened to do that. So clearly that was something where they're like, 'You owe us. We have control over you, right?' And India laughed at that time. They're like, 'Wow, that foreign aid is like one Series B round or something. We've grown up enough, right?' And but it was still a colonial mindset where they thought of themselves as being that dominant. That wasn't the case anymore. To be clear, I have nothing against the British and so forth. I'm just saying that one exception shows that there's still a mentality that if the West flexes, it can dominate. Europe has mostly given that up now, right? They recognize they're not doing that anymore. But that's because they've had decades to adapt to it. America has not given that up yet or it's only finding out the limits of its power abroad at this point.

So taking those in order, right, the American currency, the US dollar is basically the way the US monetizes global empire. So everybody or millions of people are in countries that hold US treasuries or that have their leaders actually educated in America, right? Just the Kennedy School of Government alone, if you look at the alumni, they are heads of state in many countries, right? Imagine if your head of state had trained at Tsinghua in China, that would actually be exceptional, right? But for them to have trained at Harvard is considered a credential, right? That's a scale and scope of the American government that it would literally train your leaders. Many countries from South Africa to Iraq, Americans wrote the constitution from Japan to Germany. Right? So American political influence, legal influence is absolutely global. Right? The simplest is soft power. They just thought of it as good. They'd learned economics and you know they'd learned for example that holding a US Treasury, you know what it's called? The risk-free rate of return.

Okay. You can see all these McDonald's everywhere, all these Starbucks everywhere that's within the American economic zone. They're holding US treasuries. They're transacting in the US dollar. And what the US does is it prints money and every time, let's say there's 10 trillion dollars outstanding and it prints a trillion, it's now diluted down everybody silently by about 10%. And all of that is now money that the US government can spend.

Sure. So first let's understand why inflation is taxation. If a government wants to get money out of its people, it can pass a tax which is visible and then you have to wire money to them, right? You can see that people grumble. 1% tax, it'll grumble, right? Or what it could do is it could just print 1% of the money supply in your bank account. You don't see anything change. You're going about your business every day, but it's as if the government just counterfeited a bunch of bills and they just started spending them in the economy and later what you find is prices have gone up by about 1%. Okay? But it's so subtle and it's so invisible that as Milton Friedman put it, inflation is taxation without legislation. Okay? If a state can print the money and you can't see that they print the money, see what you see in your bank is how many rupees you have, not the percentage of rupees you have as the total balance. Now you say dollar inflation is global taxation because the US government when it prints is diluting down not just the 330 million Americans but every treasury holder globally and every holder of let's say US denominated assets. Right? So that means that their effective tax base is billions of people at a minimum, all the Europeans, Australians, Japanese, the Koreans, many Indians and so on and so forth, many the Gulf States, right? And then you also have something else which is the petrodollar, right? Which is that the US military for many years, once it went off the gold standard, it used to be that you could redeem gold one for one for a dollar. What instead happened was oil, people sometimes call it liquid gold, right? Because of how important it is to everything. It's upstream of everything. Energy is upstream of everything. For 50 years, the US military had a deal with Saudi Arabia and the Gulf States that the military would defend them against any attack and guard the sea lanes. And in return, oil had to be bought in dollars. And since you constantly need oil to do everything you're doing, not just to drive a car, but to drive a truck, to bring the food to your store, to operate many kinds of machinery, right, for lubricants, oil is upstream of so much that this meant that every day you had to go and get more dollars. It was like a tax, another tax on the whole world, right? You have to buy dollars, not simply, you weren't simply inflated. That was one tax, but you also had to spend on oil and you'd buy dollars that way. You give constant demand for oil, right? Okay. So, this is a very powerful system because it seems architected on critical things.

Yeah. But if you look at all these things on a trajectory, you will see US dominance in decline. So let's take that ASML example. ASML already has relaxed some of these things. You can find that from either earlier this year or last year. Number one. Number two is China itself is actually quickly going up the stack, right? They have I think two 7-nanometer phones and the Redmi stack. Yes, that's right. But like even with EDA, Nvidia itself is saying look half the world for AI engineers, like Jensen Huang has been pushing because he knows that if China's forced to make its own, they will make their own, right? Why? Because if you look who's in hardware, right? If you look at Nvidia, TSMC, look at Intel and you look at AMD, all the CEOs happen to be Chinese diaspora descent, right? That's only a fraction of the Chinese talent that's there, right? You look at AI, a lot of the talent is right. So if you challenge China to get good at quantum mechanics and semiconductors, yes, they can do it, right? Like that's not that hard. I mean, or rather it's hard, but it's not that hard for them.

That's well, right. I was going to say almost like that, right? Like it's like making Italians in a pizza making contest. You're challenging the Chinese to a test of national greatness on quantum mechanics and semiconductors in order to also make a lot of money. That's like right down their wheelhouse, right? If instead it was like arguing in English, right? That's not in their wheelhouse. That's actually harder, right? Like Chinese are great at many things. That's not their core competency, right? Indians are good at arguing in English. That's a different thing. Okay, fine. But so that's like one example, ASML. I don't think that's going to hold up for very long. The entire American mentality also was about like playing keep away, right? Oh, hey, we've got something. We're going to keep it away from you as opposed to let's keep ascending and keep building more. Right. The entire thought was you'll never be able to catch this. Haha. Right.

Yes. Exactly. That's right. It's essentially saying ah we will try to hold the stuff back from you and try and freeze you in place which is a total underestimation of the other guy's capacity. Right. So let's take some of your other examples. SWIFT. Well, obviously SWIFT has two huge competitors which are a cryptocurrency and b the Chinese yuan, right? Really one macro framework is after America, it's China and the internet. Those are the major two forces, right? China is everything physical. The internet is everything digital. This is an oversimplification but not by much, right? And you could think of China and the internet as China inherits the military and the manufacturing. The internet inherits the media and the money, right? If you look at for example the military, right, what's the US military being disrupted by? The internet, which is drones, cyber, all the stuff like satellite photos and so on, X, social media. Military has lost control of the narrative, right? It's no longer just saying they're the bad guys we're the good guys we're blowing them up. Everything they're saying is getting falsified in real time on the internet and China is providing whether it's drones, whether it's hardware, all this kind of stuff support to the Russians, the Iranians and so on and so forth. Right? So the US currency is being disrupted by the internet, the military has been disrupted by the internet and China.

250 years. Yeah. And this is right on the dot. The US was founded in 1776. Yeah, I know.

I wouldn't say politics has taken a back foot, but certainly politics is in the foreground. Everybody's politically obsessed. But it's absolutely true that sports, I mean Trump is a reality TV show, right?

Because they are famous for entertainment rather than...

Right. So like you know, but isn't that considered to be an accomplishment today? Um it is but it is uh there's different kinds of accomplishment and simply being famous doesn't mean that you're good at managing scarce resources like what does it mean to be a politician or a head of state or a head of a company head of a network you're allocating scarce resources a very numerical thing right I have this many bushels of grain and this many barrels of oil and you know like how do I sell this and buy that and who do I hire who do I fire what do we build and so on and so forth the application of scarce resources is very different than simply being good-looking, right? Just very different skills, right?

And if you're selecting the latter on the base of the former, to be clear, I will say this, charisma does help, right? In allocating resources because it's easier to get people to do things, part of it is a sales job, right? So, the reason that it happens at all that some person who's put in charge of a large number of resources can manage them. Why are they ever put in charge in the first place is they're good at one part of it, which is the charisma part, right? but not good at the other part which is the calculation part. Elon is actually rare in that he's pretty good at both. There's some who are really good at both but it's hard. It's rare. I'd say among tech CEOs they have to have both the charisma and the calculation because they have to be able to do the pitch but they also have to get the code right.

Well there's three there's at least three parts of a currency arguably four right which are medium of exchange, store of value, unit of account, system of control.

So medium of exchange just means I can easily send it to you. Store of value means that it's valuable today and it's valuable tomorrow and it's valuable some time from now. Unit of account means I can price things in it and they're stable prices. And finally, system of control is Andreas's thing which is somebody can turn it off, turn it on or what have you or it's independent of that.

So if everybody were blasting transactions on chain, yes, you could only do on that order.