Raoul Pal: Unraveling The Exponential Age

all right Raul sir welcome back to the breakdown how are you doing fantastic pleased to be here it's been a while and looking forward to this one a while and the world has completely changed in so many ways I think since the last time we talked uh we've had you know tremendous Transformations and changes at least in the National conversation or the global conversation around crypto that includes you know changes to the technology changes the political realignment uh We've obviously had changes to the macro landscape uh in pretty significant ways you know we've had a an entire banking crisis and all the things that fall out of that and uh and then of course we've had the absolute uh Onslaught slash emergence of generative AI over the last six months which is uh you know one of the potentially biggest transformations of our lives so it's lots of a lot to to get into um and I thought where we started like we were just joking about having no idea where this conversation is going to go which is exactly how I would want it but by way of starting uh two starting points the first one is in a sentence give me your uh one one sentence take on where crypto is where macro is and where AI is maybe one sentence each I guess I mean crypto spring macro the final flush into the bottom of the economic cycle but assets are already looking through it an AI a the biggest technological breakthrough since the splitting of the atom all right awesome so as you can probably tell these are broadly speaking the three areas that I'm thinking about this conversation but let's now try to frame things and bring it into Raul's speak and and kind of your frame of vision and so where I wanted to start with that is you know there's a couple phrases that you often come back to one that you've had for a while but I think is still worth defining a little bit is the exponential age so question one is what is the exponential age and then something new that you've been talking about is the everything code and I feel like this will probably weave through a lot of parts of the conversation but I'd love to just sort of have those you know a quick definition of those things as a framework for where we start I'll start with the everything code because that's where we are today and a bit into the future the exponential age is where we're all going so where do I start with this okay the way to calculate GDP is population growth plus productivity growth plus debt growth those are the three large factors that Define how GDP moves The Wealth of Nations we have for a long time has been the observable macro trend of my lifetime or my working career is that we have been in a slow down in population growth globally so an aging demographic so that has meant we have seen lowering GDP over time Trend rate of GDP has been falling for the early part earlier part of that Trend so we're talking about the 80s 90s and early 2000s the uh yeah early 2000s the answer to that was increasing debt growth and hoping that a productivity miracle was going to come along even though we had the Advent of the computer the internet mobile phone everything in that period of time we actually didn't increase productivity per capita and that's more of a function of the Aging demographics so demographics is the big secular issue that Society faces now over that period of time going back a little bit further sorry it's there's quite a lot of moving Parts here but going back further that baby boom Generation all came into the labor force at the same time it caused the inflation of the 70s as you put the largest bulge in population in all recorded history into the workforce and into the consumption Force at the same time they went out and bid for the first housing first cars first everything else we had some Supply shocks and before you know it we had a structural inflation but another thing happened is that they came into the labor force when you put 76 million people all of the same age in the labor force they compete with each other for jobs and real wages never went up again ever and then these people the Baby Boomers had you lot the millennials and they're both in the labor force at the same time and the millennial population was larger not as a percentage of the overall population but in actual cohort numbers so what you did is You Killed The American Dream you killed the dream of increasing productivity leads to increasing um real wages and the answer to that was debt and so debt growth grew from the 80s onwards from the Reagan changes and the Thatcher changes in the UK I think we've even talked about this in the past um and so that build up in debt offset the inability to buy assets so they basically the balance sheet ends up working out roughly that households borrowed money to buy assets what are assets assets of future deferred consumption so that's what an asset is so they did that try and get wealthier but what happened is that whole system became a debt-based system and in 2008 we just had the ceiling just the whole thing blew up and it was the defining moment of our lifetimes what had happened is governments around the world had got to roughly 100 of GDP in debt now if you think about that magic formula that GDP the GDP growth is really what drives savings and Investments and also pays the interest on the debt now because GDP growth had been falling over the last 30 years what you found is Trend rate of GDP since about the early 2000s had fallen to about two percent and interest rates were about two percent well they were a bit higher beforehand 2007 they were six percent so what happened is there's not enough money to pay the interest because if you think about it GDP is growing at two percent you need to pay a hundred percent you need to pay six percent interest rates on the government debt which is a hundred percent but the private sector's a hundred and something percent in debt as well so what happened is the whole system broke the answer to that was firstly cut rates to zero everywhere and then it was quantitative easing and it took me a very long time to understand what the hell this is all about we kind of knew that they were injecting money into the system what did it mean how did it work nobody knew we were arguing about it for a very long time and it was only until really at about 2020 when we saw the next big wave of so we had QE in obviously 2009 10 11 12. then again I think it was in 14 um and then again in 2019 and then a lot more in 2020. and it was observable that asset prices moved every time it happened and the correlation was very tight and we were kind of trying to figure out was this causation correlation none of us really knew but we could observe it 2020 comes along and it becomes strikingly obvious that there's a bigger force of play here and I started to realize the force at play here was actually debasement of currency so people have been expecting quantitative easing to be a inflationary process I.E the cost of goods rise but they don't the cost of assets Rose because scarce Supply things assets get readjusted in price when you lower the purchasing power of a currency now here we're not it's not the dollar versus the Euro versus the Yen we're talking basically all fiat currency the value of it because there's a lot more of it around becomes less and the quantitative easing was the supercharging of this process so that was basically was the defining factor of asset prices and if you back it out and we look at a global macro investment my research service we look at the G5 central bank balance sheets plus uh M2 for those countries and we find there's a 97.5 correlation between the s p and that it's like okay so what we're doing is is debasing currency so the I I dug into that and thought okay if that's the basis of the problem we now face then let's look at things in that term in those terms so I started dividing the s p by the FED balance sheet or the G4 central bank balance sheets and all assets and what you got was kind of a normalized world where the s p had gone nowhere really gold had gone nowhere real estate have gone nowhere but two assets have gone up a lot and one was technology and the other was crypto I was like huh that's when I started to understand Network effects and understand the secular trends that drive cryptocurrencies and many Technologies and that was the whole thesis I started building about metcalf's law and understanding that out of that whole moment as well um I started focusing on the technology side of the equation I'm like why because I'm a macro guy we're generally technology cynics you know our job is like the the you know nothing is new we've seen this all before it's all a bubble right that's the general macro thinking and I could see clearly when I looked at the data long enough and divided by the balance sheet it looked at it very well in various ways that there was something actually much bigger going on so then I started digging in and I came up with this thesis of the exponential age which I'll come back to which was I realized we're walking into a Nexus of Network adoption effects at scale of which Humanities never seen before of numerous Technologies and we'll talk about that okay so that was that thesis this is what gave me a lot of the strength to understand what to do in crypto I realized that crypto was a secular Trend driven by um driven by Network adoption and a cyclical Trend driven by liquidity I.E the balance sheets M2 those kind of things and that um if you if you lean into those you get the big opportunity my way of doing that was not by trading in and out of crypto it was just by adding when it when it all pukes and everything goes horribly wrong and you're the bottom of the long-term adoption Trend channel two standard deviations oversold okay there's the a perfect Buy Signal if you believe the network adoption continues and that's worked for every Technology stock from Amazon to Apple to Microsoft to everything they all work the same way it's like once you see this stuff you can't answer it secular Trends cyclical Trends the Nexus the magic Nexus is really an amazing opportunity which was last year in crypto and last year in exponential Age Technology and Technology overall what the everything code was was me then starting to dig into a chart that I saw that the ism was perfectly cyclical every peak in the ism which is my proxy for the business cycle is three and a half years apart since 2008. I looked at that and thought what the hell is going on because we were used to remember that long cycle going into the 2008 you know the great moderation and now suddenly like clockwork the peak of the ism and then as the ism Falls hey Presto back comes quantitative easing I'm like okay what's this all about and then I stumbled into something that was quite remarkable is I looked at the increase in the balance sheets the increase in GDP growth anything in excess of GDP growth was being monetized but three and a half years later so then I looked at the debt structure of the United States and realized every single man woman child Corporation and the government and every government around the world and every corporation reset all interest rates to zero in 2009. it was like a reset and everybody's got roughly three to five year debts and they keep rolling every three and a half years so then I thought huh I wonder how the interest payments look and what I found is the interest payments that the US makes and the EU and Japan and the UK were explained by the amount of quantitative easing that happens three and a half years later I'm like holy so what I'd suddenly stumbled across in the everything code was the fact that the global central banks had probably agreed together in 2009 10 11 12 probably 2012 after Europe blew up that with governments at 100 of GDP in debt they were going to crowd out all the private sector and we were just going to keep having Financial crises and the only way of solving this was putting on the central bank balance sheet because there's not enough GDP to pay the interest so if you think about GDP growth and let's make the maths easy even the GDP growth is actually 1.75 average uh sorry Trend rate in the US but let's call it two percent and let's assume interest rates are two percent which is roughly where they've been since 2008. so if the government's 100 GDP in debt GDP grows at two percent and interest payments are two percent that's all of GDP growth just to pay the US government debt just to pay the interest on the debt so but the private sector excluding the financial sector so households and Corporation is another 120 of GDP in debt well that will give you negative growth every year of two percent and it just compounds so what happens is those interest payments just go into the FED balance and they monetize it so then the private sector is not competing with the government and that was provable across all of the major economies it's like they've all decided that they were too far in debt the only way of doing this was quantitative easing and then I started thinking well if I know this to be true and I know that the central bank balance sheets are 97 correlated with the asset prices well all I need to do is predict is use forward-looking indicators for the central bank balance sheets or and or interest payments I can back it out a number of ways and what I found is that I could build a model with Julian Bittle who works with me um to forecast out the growth for central bank balance sheet by about 18 months to two years and it's like and it works almost perfectly and then I backed it out a number of ways because I don't want to just rely on one indicator like you know forward-looking indicators I had been using for a long time the chart of the labor force participation rate in the United States which is a function of demographics and I found that it perfectly correlates with the FED balance sheet and it predicts it going forwards because you know where demographics are going to go going forwards and it got to this number where the balance sheet gets between 12 and 14 trillion by the end of 2025. now if I know that and I can prove it out by the interest payments that we know are due because we can see that in advance and they come to roughly the same number which is 12 to 14 trillion then I looked at it different ways I looked at the trend rate in a log channel and it would give you the same number at the same period of time which is the next cyclical peak in the ism okay so if we look at that and we know that it's the maiden driver of asset prices we know where asset prices are going which is why it becomes everything code because there is no macro it is all an interest rate cycle driven by interest payments because all debt got reset which is why everybody has struggled since 2008 to understand the world why do why does technology stocks keep getting expensive what is growth stock so then I started thinking about that and I had a hunch that P ratios Rising were not a function of crazy people and valuations it was just a function of the same money illusion metrics of debasement and what I found is the PE ratios are basically driven by two things the price the p goes up because of the basement and the E earnings are driven by M2 so that relationship between M2 and the balance sheet almost entirely explains P ratios like everything has become a monetary phenomena everything that's why value investing hasn't worked that's when none of this has worked it's because we're not driven by the same things any any longer so then when you're seeking Clarity in this world and the world is actually the most simple it's ever been money in Money ad that's it then what you want to do is earn the assets that rise the most and outperform that which happens to be crypto and and technology so if we look at the last time we went through this point which is the turn in the cycle which is where we are today that was December 21st I think it was 2018 when the FED paused which is roughly where we're getting to now the market already knows this it can see it coming we're already having a banking crisis you know all the signs of we need to stop and what happened after that over the next year is the s p Rose about 15 the NASDAQ Rose about um about um 25 percent what I call the exponential age stocks they Rose about 35 40 and crypto did well at one point three hundred percent but ended the year up about 100 percent um which is truly extraordinary I've also then shown that crypto is all the same thing so if I use the same Global liquidity index it's basically child Bitcoin but Bitcoin outperforms in the upcycles because there's a network adoption model which is why it does so much better than almost all other assets so that's the everything code is the fact that it's all down to one simple thing and I think it's forecastable and in which case we know the price of Assets in advance which is a little bit freaky and I know that sounds somewhat arrogant but it's a hypothesis that I'll test but I'm pretty sure it's going to be right unless something changes and what we'll know is are we going to see larger scale QE coming in the next two years so what would have to happen for that to be true firstly we've got a banking crisis so it's already started secondly so the bank balance sheet is rising whether you call it QE or not doesn't matter the balance sheet is rising that's all that matters secondly we know that this is not resolved yet so there's a potential for further use of the balance sheet to sort out that part of the banks but then we've got another problem here which is commercial real estate commercial real estate nobody's going back to the office I mean you don't work in an office anymore I don't work in an office nobody works in an office anymore so that's 50 of all of this kind of office buildings are empty across all the big cities so everyone's going to get out of their leases and everyone's going to be stuck on these smaller Banks now interesting enough we saw this before in Europe This is what happened in Europe in 2012 between 2008 2012 all the real estate was empty and all the banks went bust and the the ECB stood up and said whatever it takes that was to both protect the Sovereign Nations going bust but also the banking system and what they did with the banks at that point they said to them we will take anything as collateral you can give us chewing gum wrappers old cigarette packets empty cans of coke we'll just take and give you a lend against it we don't care what it is and that's how the banks stayed solvent then we've got the demographics and then we've got the debt payments to come all of that looks very much like there is no way that they don't do a lot of QE but here is the final problem within the everything code is well right now if I'm looking at two-year rates they're at 4.15 percent GDP growth is all this year is probably going to be I don't know one percent at best or probably negative who knows depends how it falls so that's a huge gap that needs to be funded because you're just going to create a recession because the U.S economy is 220 of GDP in debt and interest rates are four percent and growth is one percent so you've got a massive loss in GDP so they're gonna have to cut rates which backs out against what the banks are saying which is the banks are saying the rates are too damn High we have to engineer a false yield curve by having a half percent deposit rate so we can we can have a positively sloping yield curve and basically we need a yield curve that is positively sloping which means that the FED need to cut to 300 basis points pretty fast but they won't do it until the banks really puke which is the next phase of this and probably the Final Phase when we go back then after that that all backs out is the things that really matter to the fed well inflation's falling and it should continue to fall the other part of it is unemployment unemployment lags by a long way as do rents so going out for the next 18 months to two years from the bottom of the cycle which I think happens in the next couple of months we will see unemployment rising and dragging and that whole situation is why monetary stimulus continues a long time after a recession because employment is always lagging and so again that's where I think the use of the balance sheet then eventually the economy gets traction again and we go into the business cycle which looks like it Peaks sometime in 2025 according to that same thing probably end of 25 not quite clear might be a little bit earlier and that's so the everything code what I found is all these pieces of the jigsaw all actually match it's ludicrous and what I found even if I take the log chart of the NASDAQ and map it forward to say okay what's the top of that channel like we do in Bitcoin well it comes with exactly the same number that the balance sheet number gave me as well which is the same number that I got from demographics I got from interest payments and I got from everything it's like oh my God like everything's come together so that's what the everything code is it was like the culmination of 18 years of work and it was like an epiphany to me because I could prove it all out and I never thought I'd get there because it it all felt like we didn't quite understand it and suddenly it happened a million follow-ups but one that I think I'm sorry that was a very long solilo question that's exactly what I wanted as a starting point there has been a sense I think that lots of people have had that certainly you have had that others have had that there are underlying hidden forces to reference the name of another great podcast that shape uh or that are that basically all Market participants are subject to even if we don't want to be or even if we can't quite see them and I think based on perhaps Media or just sort of you know social media narratives that's often attributed to just sort of fed policy right that everything is just subject to Fed policy and it sounds like part of the underlying thesis or you know uncovering for you with this everything code is that there are actually even deeper structural forces that the fed and other central banks are themselves subject to that are much more fundamental to the structure of society and the economy namely being demographics the record of the the decisions made over the course of the last you know set of decades to address demographic changes and what that left what's that what that has left us in terms of uh where we are with the debt cycle I mean is that is that another way of kind of putting it that is yeah we correctly felt that there were hidden forces but maybe we just didn't put our finger on exactly what those forces were because what we want to do is blame and we ourselves were to blame and if you want the real blame it was World War II I mean because that's where the baby boom came from so a knock-on effect of World War II of peace in our time was this nobody would have foreseen that that's what happened um so that demographic Force which is us created this the death of the American dream because there was too many people to share the pie then we add globalization of the labor force and then we add technology and people have no chance so they borrowed debt and then when that blows up they get angry and the people on the coasts blame the people in the middle and the people in the middle blame the people on the coast it becomes a political divide it's not to do with politics never has been but what happens is people are angry and they don't know who to blame and that's a bigger force that we're seeing play out now that's the rise of crypto came out of all of this as well Occupy Wall Street Wall Street bets the online online Network communities that we're seeing formed where people are getting together to take the system in their own hands in different ways it is a it is a forth turning moment it's a societally structural shift that happened in 2008 in ways we won't understand for maybe several decades but it changed everything this is a little more subjective in the sense that it can't be mapped against uh uh charts in quite the same way but within this framework so one of the things that was notable to me as you were describing it is especially in the context of Jerome Powell being so desperate to be volcker not Burns over the last 18 months the problems of the 70s are discussed almost entirely as a policy phenomenon right it was Arthur Burns taking his foot off the gas too fast or or just sort of being you know wishy-washy about the inflation battle and that was what caused inflation now maybe some people get into structural changes in terms of the oil market and things like that and you know leaving the gold standard but what you're talking about is something that's again much more fundamental and underlying just more people than had ever been coming into jobs and competing which and consuming which is going to cause inflation so I guess the question that spins out of that is there's clearly some room for agency within these larger sort of demographic and structural Trends in the sense that a different Fed chair might have made different decisions in the 7 Indies that would have influenced how problematic the inflation that was always going to show up or pretend or probably always going to show up because of these demographic factors would become I guess the question then becomes now looking at where things are here in 2023 what is the band of agency that policy makers have that markets have as relates to sort of these larger structural forces so for example you know as we look towards uh the you know this 12 to 14 trillion dollar balance sheet what are the what are the the sort of inflection point type decisions that policy makers could or couldn't make that will or won't get us there you know it basically I guess another way of asking it is my guess is that your argument wouldn't be that everything is predestined it's that there is extremely powerful driving forces that every sort of active agency has to contend with but within that you know how much room to shape things do do people actually have be they individuals markets or policy makers so just to go back is the one thing that changed the equation go back to that magic formula of GDP the one thing that changed was debt growth now we we might have had slower growth over time but the system wouldn't have fallen apart and it was probably green span that started that so Reagan and his reforms of credit and then Greenspan using interest rates before it was truly necessary meant that the world got too levered so that was the unintended consequence of the wrong policy back then so he was stuck with a policy where I don't see choices well in fact no I lie you've got two choices as the world stands today assuming it's a steady state world you either continue to use the balance sheet or you take the GDP hit but the problem is these interest payments come every year so you just keep compounding negative GDP it's like how's that going to work and is that what people want it's all well and good a bunch of Austrian Economist Dumas saying well we just want to blow everything up I don't think we can it's too big because the cost to society in humanity is even larger than the costs of what is happening now which is driving the one percent versus the 99 and all of the other issues we've got going on so there's one outcome and this is where it starts to get contentious the only outcome is to increase productivity and so we enter the exponential age so firstly the exponential age thesis is that we are at this Nexus of Technology of which mankind has never gone through and it'll happen in the shortest period of time of any technological change ever and it's all happening in a way that we will not be able to get our heads around and crypto was the start of that there are Trend all these Trends have been in place but they're now about to hit adoption phase so crypto was one of them we're only at 300 million people the next time we poke our heads above the water in three years time we'll be a billion people and then four billion people whatever the numbers work out to be ai's been coming for ages and then it's like a nuclear bomb hits in one go because it was so much faster in its adoption than anything Humanity's ever faced we've just brought knowledge and we'll go into AI later we'll just put knowledge infinite knowledge scalable knowledge into the global economic system and it happened in a three-week period when gbt4 came out it went from zero to 100 million users in five weeks I mean oh my God and we're all scrambling and then and then we've had more developments there but that's not just the exponential age the next thing is well in three years time we're going to be having this conversation it'll be like how all the Uber drivers and all the bus drivers and everybody's been laid off because of self-driving cars is going to happen we're at that cognitive dissonance now of like well it's not going to happen they're never going to solve this and then immediately it gets solved do you remember the arguments two years ago well Machine learning is hardly AI next minute AI comes along and we're like is this generative is this AGI we don't even know anymore right um and that's going to happen with self-driving cars robotics it's another Trend I mean just look at that Optimus robot and he's not the only one um Tesla not the only people doing this but he happens when the fastest supercomputer in the world dojo the Optimus robot the self-driving cars with all the visualization technology the mapping of everything and in addition he now owns Twitter which I argued a while ago was just to get the AI and why he wants an unbiased Twitter is to get as much AI as possible so we've got Robots coming we've also got genetic Sciences when you add AI into biotechnology you create outcomes much faster so we'll see huge breakthroughs in in medicines um you would say that RNA vaccine technology is a huge breakthrough in technology and we've got more than that distributed computing power space I mean today as we're speaking elon's just launched the largest rocket ever launched into space yet it was a successful launch but failed to um to decouple its engine or whatever and then blew up afterwards but but generally speaking what he's doing in space and many many others is another whole Quantum Loop that most people haven't got their heads around yet I mean the fact that we've got Wi-Fi all around the world now coming from satellites it's kind of ludicrous but it's happening and that changes the whole equation data 6G 5G all of this this all Internet of Things wearable technology it's all happening this Nexus of Technology is a game changer for Humanity it's a it is the fourth turning moment we can't even understand what the world is going to look like in one year now we can't you and I I'm reading your Tweet threads you're doing a great job of trying to keep up but it's impossible just with AI and then when we've got stability AI which means it's open source and people can build on it this is just going to keep happening right AI alone is Reed's law which is metcalf's law squared which is why it's so hard to deal with and all of these Technologies together are all Reed's law so that's a very hard point but where it gets really interesting is to go back to your original question is what can policymakers do about all of this problem that we've got well the problem is we cannot grow new people demographics is Destiny and it's baked in the cake we cannot accept large waves of immigrants in most countries because we don't have enough productivity so it's like okay we're a bit we can't increase debt because we got to the end game in 2008 so the answer is productivity so right now productivity has not been increasing enough this exponential age is the rise of Technology but there's one missing component that changes everything all technology really does is leverage a calorie of energy or a duel of energy into an output so the more efficient we get with our use of Technology the more output we can get per unit of energy because energy has been a constant in our lifetimes in fact for the last hundred odd years basically if you do the oil price and adjusted by inflation it's roughly been around the same level for a very very long time but when you look at what's happening is the the exponential downtrend in the cost of Renewables is a game changer and that's without including nuclear which will come into that mix then you listen to what the EU Japan China the US the UK the big Global economies it's kind of like they understand this because what they said is we're all in on Renewables we're going to incentivize this because not only does it help us with climate change but if we can take the cost of electricity down to near zero the entire productivity of the world changes exponentially that is the way to get out of this mess it's going to be GDP growth per capita because we'll have less people and much more productivity because the cost of energy is not anchored at forty dollars a barrel oil whatever that backs out into electricity yes electricity gets more efficient but if you can drop that equivalent oil barrel equivalent down to two bucks does that mean energy energy is then infinite now yes I understand Battery Technology is not far enough yet all of these things that's like arguing machine learning is never going to become AI until it happens so I think the governments understand this and I think they know it's the only way out and that is why the inflation reduction act all the green stuff everything happening Europe I mean the the Ukraine situation with Russia was an accelerant for Europe to say we need to get this done because it also works for geopolitics too so it's like a win-win-win for policymakers so that's what I think is is happening here is is they go they want to drive down the cost of electricity energy Independence you'll have a distributed grid of electricity and then what you're doing is leveraging this exponential technology on top and it changes everything for everybody forever I want to come back to uh the the specific way that exponential technology is likely to impact economies because I think there's a pretty chaotic middle period right where we need to talk about deflation and changes in work and stuff but before we do that you brought up another piece which is sort of you know to the extent that we're trying to frame the underlying set of forces that are competing to shape the world we've got now uh the demographic Trends we've got sort of the debt structure which is the accumulation of economic decisions and policy decisions made over the last 50 years we've got this sort of exponential technology that is you know increasing at exponential rates the other one that you just sort of mentioned is geopolitics and I guess you know on the same theme of how much do these different forces uh interact with the trajectory of of each other you know of the sort of demographic changes that the technology changes how do you think about geopolitical realignment right now obviously moving from a you know strictly unipolar world to a multi-polar world and all of the sort of phenomenon contained within that how much does that have the ability to shape how this all plays out so if you think of a unipolar world where security resources was global and the US was essentially the U.S United Nations were the policemen of those resources and if people stepped out of line then they would step in now that is changing because another country became a such a large part of global GDP which is China which wants to say in the equation I get it we all would if we were Chinese too if we were that important we'd like we want our seats at the table so what that really means is that people have now said okay we can't have this Reliance on a globalized supply chain when we're not all in agreement anymore so we need to go some sort of regional all we need to change what Supply chains are entirely so the biggest supply chain issue for the world is energy so again it goes back to how does geopolitics shape this first thing you need to do to be energy independent the US is energy independent which is why it's always been slower on a lot of the green stuff Europe's not energy independent which means it needs to be faster right kind of makes sense when you say it in those terms this is also the system of money and the fight we're seeing with crypto and everything else is it's the system of the dollar being so dominant that the U.S economic cycle is the global economic cycle and actually the US has captured a lot of the the benefits of that and everybody else has had downsides so people have like we've had enough of this the Swift payment system was the kind of globalized weapon and even the EU don't want the Swift payment system anymore nobody does because the because nobody wants Reliance so we're we're splitting into different factions in this multi-polar world that is having real effects on technology because now it's a technology race as well about you know who can conquer space who can conquer AI who can conquer Quantum Computing because again Quantum Computing is another one of these power law exponentials because if you change if you completely change the game on how much data can get crunched in one go everything goes again you know the the Ridiculousness of what is happening so yes the these things all weaved together they're all part of the same narrative um the only narrative the the only big shift outside of that narrative was obviously China um coming in to the WTO you know when they came into the world stage that was a big structural shift the biggest shift that we've had of our lifetimes until AI came along which I think is actually bigger than China entering the WTO so China was like you know you're sitting in the bath and an elephant jumps in your bath and all the water gets displaced that's what happened with China um and so it's been struggling to find its place and this is going to be ongoing but the Chinese population shrinking too so their economic power is going to go down because they've got ridiculous debts aging population so there to solve the productivity as well India is different India has an average age of 28. and 1.4 billion people okay that's that's pretty handy for India but I don't know how valuable people are in this world so they'll have to figure it out because that that's a complicated situation in a world where knowledge has been replaced by computers one thing I want to come back to again I'm flagging all these things for later but uh the what kinetic War especially major power War might might do to this but let's not start there because that's a that's a whole uh thread I think um I want to ask a question about the US dollar just again in this sort of geopolitical context one of the interesting tensions feels to me like the globe has been on this dollar system but it hasn't exactly been on the dollar system because the U.S mandated it's just been kind of convenient and it feels to me like part of the tension is that the US is as it withdraws from the world it's trying to reassert its dominance over its own dollar system whereas it's sort of benignly just let it be whatever it wanted to be before in the context of the rise of Shadow Banks and all these sort of things not being over aggressive with sanctions Etc how much you know where where does the Dollar play out in all of this obviously this has become massive political fodder In America which I don't think many people would have predicted with the right really latching onto this dolorization idea but you know what do you think of the Dollar's role in the near term with all of this so the dollar was so big because the U.S was the largest part of global GDP and it was the most stable part now as the US has become a smaller part of global GDP it's more problematic because the global system is now reliant on dollars so we've got this gigantic euro dollar market there's a global shortage of dollars that's ongoing because the US doesn't Supply as much dollars into the system anymore because it's not a large as large apart that's part of this unstabilizing effect that we've had but the dollar is what 87 of all world trade and maybe 50 or 70 of all World debts so there's no way you can walk away Charlie can't walk away from the dollar without entirely nuking its own country nobody can so it has to be a slow ongoing process because there's too much debt in dollars and everybody needs it for trade so if you go to this world that you see people talking about on Twitter it's like well they're going to walk away from the dollar great you've got the dollar debt and you've now got Yuan or rupee income well that's the recipe for a disaster what most people have got is dollar debts and dollar income if you're an oil producer you can have dollar debts and you can have dollar income it's the mismatch creates all sorts of problems so I don't think this can happen quickly and I don't know the answer to it but that's why I'm not a believer in the dollar is going to collapse interesting enough there's a very high correlation lagged by 18 months of the price of the dollar and QE so the the dollar rises in line with quantitative easing but with an 18 month lag it's interesting so the another way to put this or should try to connect the dots is one of the Theses of the everything code that you laid out is that uh the the sort of the debt that is accumulated from again these this set of decisions that have been made of the last 50 years dictates a huge amount of what we can and can't do sure maybe we have agency but it's agency within a band that's dictated by these sort of you know unignorable phenomenon the dollar basically in a geopolitical way has a very similar impact in terms of restricting the band or sorry excuse me Dollar debt and dollar denominated debt has a similar limiting impact on the decisions that people can make so even when people are correctly identifying the phenomenon of people Desiring or countries Desiring or different polities Desiring to be less beholden to the dollar the structural accumulation of dollar debt over the last however many years shapes the ability for them to put into practice changes yes I mean look if you owe somebody money you essentially become a slave to them you made an economic decision that you would forego some of your agency to have cash now that's what the debt is right and this was what you know seeing this rise in 2012 in Europe where I'd lived this in Europe when almost all of the countries blew up and all the banking system blew up you know Cyprus they took the money out of the bank accounts much what's happening in the US now and seeing everybody lose everything is what got me into crypto because it it gave me a sense of agency um and it is it is an answer to all of this and that's why I've always referred to it as the Bitcoin life raft or a parallel Financial system it's actually not parallel it's actually converging and it I think it conversion 2020 but I think you know from the Russian sanctions and basically destroying their Sovereign reserves through to ongoing debasement of currency through to the ever-changing geopolitics and the uncertainties through to the fact that the adoption of digital Technologies overall is increasing the probability of the adoption of digital systems of value it kind of feels like okay well this is the perfect place for me to get some agency back in my life where I'm not as restricted by the forces of course we all are restricted by the forces because we have to earn a living we have to live physically in a country where you either have to pay taxes you have to be part of the political system um and you earn in that currency and you have a set of outcomes depending where the economy is but at least this system gives some way of a way out so this was going to be my next question is how much do you think from a global adoption perspective the uh the adoption cycle for Bitcoin and crypto more broadly will continue to be driven by this need for individuals or this desire for individuals to exert agency and to have sort of Alternatives or at least Hedges against whatever monetary regime they're a part of versus it being a broader phenomenon uh by by way of example you know the Russian Central Bank this week talking about uh exploring a cryptocurrency licensing regime just for the sort of you know export import deals even though it's illegal for normal day-to-day transactions I guess you know another more crisp way of putting this is obviously adoption has been driven largely by individuals coming to the decision that this is valuable for them versus you know big governments uh you know which are sort of the exception not the rule deciding this is valuable for them do you think that continues or do you see more room as countries do try to shift out of sort of a Fiat regime out of debt regime for Bitcoin and other cryptos to play a role kind of on that larger scale so going back to 2008 the big thing that changed was we lost Trust we lost trust in the system people lost trust in the American dream or the European dream they lost trust in Banks they lost trust in intermediaries they've lost Trust in Media they've lost Trust months have lost Trust so nobody has Trust so well crypto is a trust-based system which is interesting but what it means that okay if you don't trust anybody you need something that that helps you that traditionally was played by gold you know I don't trust your money you don't trust my money I don't trust that you're going to do this so I'm going to keep gold but gold was also seasonal so crypto played a role in all of this but and it plays it at many levels it's clearly not a system of money yet because it's too volatile it's impossible to try and deal with daily transactions for bread in a bitcoin price that goes up and down up 700 and down 70 percent that's the way to destroy an economy volatile money but in terms of long-term overall savings because it offsets the debasement of currency which is driven by the debt and the demographics and everything else it works very well indeed if that better than anything else and because we've got this ongoing adoption of the technology so when you go to firstly who's the biggest players in the world that are potentially moving into this Market I think you arrive you can talk about this in the past it's the Sovereign wealth funds they have an infinite time Horizon and what they need is Independence over all things now most of them have an enormous amount of U.S treasuries which they will do because they have Dollar debts dollar economy everything else so it's not like we're just going to sell our treasuries but they need other things now they've been buying gold at record Pace obviously because if the US seizes the or renders useless the Russian reserves in U.S treasuries then why would anybody want to hold us treasuries over an extended period of time you either have to be friends of the US or you risk it so I see a role and that's I think one of the reasons why the Middle East is becoming very active participants in the market overall um and I think for individuals because of the lack of trust it's one thing we can trust because it's not driven by government all the government's going to do is try and regulate it but they can't get rid of it and it actually empowers people to think that you're fighting the government when it comes to regulation I mean just look at Twitter people love an enemy and Gary genzel is like Enemy Number One because it he he represents the old system the system that led us all down and he's kind of say look we're there to protect you and everyone's going you you never protected Us in the first place we'd rather take our own risks with our own money which is the agency thing that you talked about so I think that trend is Unstoppable but then obviously the layer of web 3 that lays on top of it you know how can you use this technology and other new and unique ways is the the driver that turns it into a metcal's law adoption model because you're Building Systems on top of of a network itself um so it kind of becomes self-reinforcing the other really really big thing and people don't really understand it yet is ethereum having a yield and a liquid stake a liquid yield at 12 months means you've got a money market curve for the internet um and that gives you a value of money it gives you an ability to price risk you know what is a yield on a um a C5 platform risk adjusted versus if pure staking you know it's very interesting because you're creating I think eth is actually almost a complete uh Global digital economy right now um which is very interesting to me I'm going to be writing a piece on this as well about how in front of our eyes we've actually built a whole new economy I haven't really realized it um we kind of see bits of it so okay so let's jump off from this idea of uh trust this is something that I was digging into with uh Sergey from chain link a couple weeks ago uh it's fascinating that we have sort of converging trends that Bitcoin and crypto and blockchains uh weirdly answer in ways that maybe were unexpected on the one hand you have sort of your point about the lack of trust of Institutions or the you know crumbling trusted institutions now there's a lot of interesting thinking in the same way that you're sort of examining these underlying structural forces that have got us here in terms of economic decisions and and and outcomes that are possible there are more and more people who are kind of looking at the almost the underlying social physics of the internet and saying that the sort of the period of consensus reality that we had shaped by media in America for the back half of last century in the beginning of this one was sort of a historical accident and as soon as the internet hit forget social media but as soon as the internet hit and the ability for information to flow wherever it wanted to and for people to aggregate around that information and congregate around the information that they wanted meant the end of consensus reality um well in that you know a a a a shared digital Ledger that is public and viewable and verifiable by any one participant becomes an incredibly valuable thing not just for Distributing value but as a source of truth it's a source of truth that's used for you know for for who owns what parts of that ledger initially but it becomes the the potential is for it to be sources of Truth elsewhere it's come up a lot now uh very nascently but as AI has become generative AI has become so omnipresent uh and we feel ourselves I think starting to shift to a default assumption that things are that we see are are not real in the sense of the word that we might have used 20 years ago but are created or shaped or you know or or or whatever whatever term we figure out means you know real in the internet world but not real in the real world let's talk and shift the conversation into Ai and I guess that what I where I'd love to start is is almost the sort of more personal side because you know my belief is that when the history books are written this sort of six month period starting with the introduction of chat GPT in November of last year plus sort of the advance of majority and Dolly and stable diffusion will be seen as the sort of inflection point moment but particularly that that five-week period that you referenced before where one from zero to 100 million users of chat GPT which was you know Tick Tock had previously been the fastest to 100 million users and that happened over the course of eight or nine months so you know for 4X faster than that obviously paid attention to AI before it wasn't like it just hit you over the head but what was your personal experience of saying or of recognizing that this was different than just another new technology that had popped up in another hype cycle it was when an old friend of mine Ahmad mustack who's now become quite well known um emad was a macro guy I'd known him for years he's been on real Vision talk about emerging markets and stuff micro guy very smart guy and yeah I'd known him for a decade or longer and over the pandemic he hit me up and said Hey listen I've got something interesting for you I'm working with the who building pandemic AI modeling and I think there's something interesting and we can model out the the spread of the virus so I'm like great so he came on and gave us a pretty Grim assessment of where the virus was coming this was February March 2020 so it was he was you know really good so anyway thought nothing of it and I saw him on Twitter started to talk about show some stable diffusion images and talk about AI so just hit him up and said what are you up to so he said look we need to talk so I got one real version and sat down and said right what the hell is going on and he laid out what was happening in Ai and stable diffusion and how fast this was happening and that he was launching and obviously chat gbt 3 had launched so he's like well this is kind of where it's going within three months of that hitting which was a big shock to everybody that interview was a huge shock it kind of everybody went I did not know any of this and then chat CPT 4 came out and then it just went you know the biggest thing we've ever seen so yeah I was I was lucky just by random I got into this as you said we've all been aware of this for a while but I had that acceleration moment with the first interview with emad where I'm like oh my God this is happening now and he's already telling us back then which was what November or something he was like yeah well text a video video to videos like we can create fake characters he goes he's buying Sports rights to some of the most famous people I can't really give it away Of All Times could trade AI so they can compete people who've never competed before and it's like that as you were talking about this warping what is reality reality doesn't exist in the way that we understand it to exist anymore and once you understand that that was the first breakthrough for me and then the I and then it was the understanding that this is the replacement of human knowledge at scale so first we can augment ourselves but it also replaces ourselves as well and knowledge was not scalable not in the same way but this now becomes infinitely scalable which is what people can't get their heads around yet one of the things that makes this period that we've been living through so fascinating and in particular that that moment that zero to 100 million moment was so often even in crypto I mean especially a cryptocrypt is a great example these things that are that that people who are deep in them understand as the future TM right because of you know the inevitable trend lines right like you laid out in the first hour of this conversation all the reasons that uh you know that Bitcoin that crypto that ethereum feel completely inevitable to people who are in them right it's so much bigger and more uh inevitable than any amount of guns they're screaming at Congress or vice versa can can do even if we have to live through that in the short term it's why that you know when when this interview is probably done we'll probably have spent less time on quote-unquote crypto than anything else because it's just sort of like it's just the inevitable consequence of this right that's the way the technology new technology often feels for people inside it but for people outside it it's completely abstract right we still the average person in America who has heard of Bitcoin and crypto and has no idea why it would be relevant for them right that it's just that's sort of the way that it is now that might be different in in different kind of countries that have different sort of monetary regimes uh but by and large it's still a phenomenon where there's an early adopter set who clearly get it and everyone else what was fascinating or what has been fascinating about Ai and in particular uh again like I said the combination I think of chat GPT a chat interface sitting on top of gpt4 or GPT 3.5 even and the ability to use the mid Journeys and dollies and stable diffusions of the world has made people see way faster what the implications are for themselves I mean they feel it like if you go on Tick Tock right now and you watch the average video about AI it is already and we are less than six months after this happened how AI you know how chat GPT is going to change real estate forever because all of a sudden you have all these you know you don't need to write listings in the same way and then it's how chat GPT changes copywriting and marketing and it is a absolute race for people to understand how their industry their jobs their specific skill set is going to change and be disrupted on the basis of this and fascinatingly it feels to me like the change is so profound to people that the people who are actually paying attention and who have dove in and even tried these things have almost entirely skipped over the step of being mad that it is likely to replace them and jumped right into how do I change because it feels so inevitable once you see it it's impossible to unsee there's no sort of like no we should stop and copywriters should form a union to stop copywriting AI right it's just okay how do I become the copywriter that's powered by AI I guess you know as you look at the AI space how much do you think about the disruption in terms of either one the transformation of work of individual kind of jobs and and careers so this kind of gets into the productivity piece to the transformation of Industries and larger sort of you know deflationary trends that might have been there before with technology but are going even further or three transformation of societies in terms of our you know understanding of purpose in terms of structure of society or in terms of things like safety and X risk you know obviously these are all kind of pieces of it but where have you found yourself focusing uh you know as this is sort of blasted onto the scene the easiest one to answer is the second one this is the largest disinflationary shock the world will ever have and it will keep playing out as these other exponential Technologies become implemented just think I was in New York when I was reading a thread on Twitter I was in an Uber and it was a thread about the rise of autonomous vehicles in California and how this guy whether he's in the industries around Tech Industries like you know three years ago I'd see a couple of these things and now I see them every day 10 times a day um and I looked around me in New York City and every car was an Uber a taxi a bus driver and you're like oh my God AI all of this stuff together is the biggest disinflation shock the world will ever face the WTO agreement and China entering it was gigantic but this is of a different order of magnitude so that's good in some respects but that disinflationary shock is all part of this work replacement why is it disinflationary because it replaces humans and it replaces humans at a scale so it's kind of like I think why people are accepting of it so fast because it's so inevitable it's because there is no other choice what are you going to do shake your fist to the sky and we don't know what it means we don't know what it means for work we know that if you get it right you augment yourself on a scale of which you cannot comprehend augmented humans is a very attractive thing so we become super productive units that's okay once the Baby Boomers have died off it's not okay when we've got too many of us around still because there's we just don't need as many humans that's the hypothesis now could it be that we create enough productive activity through this can change in productivity that we can employ More Humans in these kind of areas I don't know but the problem is it's got Robots coming as well so if the AI doesn't get your job the robots will get your job so it's a very very scary place for work but oh my God if you leverage this I think it's a Renaissance for both Global economies and for people themselves you know one of my hypotheses for web 3 was that the rise of all of this is leading to a need to support incomes for people this is universal basic income argument fine and there's ways of solving that both the private sector and state sector State sector is a problem because we don't have enough money so we have to tax the robots maybe to get the money but we're all underfunded we've got this problem with debt there is a way that you and I can restrict our data online because we have agency over our data and therefore sell it to the platforms and the advertisers and get income for that okay that's that's nice but probably not enough and I was talking to yatsui and I had a big breakthrough which was Universal basic equity which is in web 3 in these decentralized nations digital nation state societies communities you can own the assets or the currency of those communities and you can be rewarded for being a good Community member and we're seeing that all over the place now it's pretty nascent but it's everywhere um and if that is the case then we can replace our purpose and our purpose could be society and community now what that means could it be for work output it could it be for leisure output doesn't really matter could it be for cultural output for sure you know for sure Louis Vuitton understand this for sure Nike understands this is the Loyalty of web 3 and tokenized assets whether it's a loyalty currency Community currency like Starbucks or whether it's an nft um like Adidas these things are making people participate in the success of those Brands those cultures and we all see this in music and you know we'll see it all over the place so I'm actually interested in how do we adapt because we will not be able to all be super Computing AI Geniuses with amazing prompt skills and even prompt skills go away pretty soon um and there'll be such a PR proliferation of newsletters we're already seeing it how many bloody AI newsletters are there there's like 50 and they've all come and they're all being written by chat gpt4 so this excess content access everything else and we're gonna need a purpose and a meaning and a place of trust and a place of trust is these digital societies online it's the digital Network State idea of Balaji something I've been talking about for a very long time is this way that we live our digital lives like um you and I we've never met I've spoken to you so many times I'll consider you a friend raise each other up we'll chat about stuff we will talk to each other in this digital representation we live in the same Community which is somewhere the Nexus of Finn twin and um and crypto Twitter um and those are you know the overlaps and we're both kind of in the in the in the media area as well so there's there's these number of overlaps of these digital societies that we've both belong to and that's very different a world than it was before 2008. that didn't exist I mean Facebook was 2012. so again it's one of the answers for society staring Us in the face which is we can find a purpose and the purpose is Humanity culture brand businesses by doing it together with more agency where we get to choose I mean what I love about these digital sovereign states is you can just pick up your assets sell them and leave them move to the next one it's really hard for you to leave the United States my wife is a U.S citizen and we live in the Cayman Islands and it's a nightmare because U.S tax and your jurisdiction because the U.S is actually a very unfree place once you travel you can't open a bank account you can't you can't do anything it's actually very difficult um so but these digital sovereign states you could just sell it you just move on and move on to the next one you know don't like board eight but I want to join crypto punks I don't like ethereum when I bought join Solana you know I don't like you know I like Bitcoin I want to just own Bitcoin it's it's becomes very very very interesting so I think this is all fair I think so let's go to the broader one which is society itself Society is going to struggle with the exponential age not just AI it's going to really struggle to understand what is truth what is my role who humans are and where is this all leading to because if you put unlimited energy at a low price virtually zero you add AI Robotics and all of this stuff you add networks from space outside of sovereign control which is what's happening I mean people don't really understand space is a non-sovereign place of which there is a massive commercialization going on on a scale most people don't understand we've got oh I've lost my train of thought but we've we've got all of this kind of Mega Trends going on and for society itself and I don't know how we can keep up and how we did not draw the dot dot dot add Quantum Computing end of humanity I I can't I cannot get there where we don't have that because once you put exponential computing power with exponential knowledge with which self learns with zero cost of energy I mean humans are pointless and that's very hard yeah I mean so so I think that there's one of the reasons that I'm I'm so attracted to this conversation is the stakes are so high obviously but it's also uh of any technology that I think any of us have ever experienced the easiest to both see the Utopia and the literal sort of end of humanity so on the Utopia side just weaving together all the threads of what you just said if we successfully make it through the transition which there's no way for it not to be brutal and difficult there are pretty strong arguments that humans that don't feel their value is strictly based on what they contribute to a random Corporation or economy or job is a better thing right there are arguments that are pretty compelling that uh when everyone can code sure maybe it makes the salaries that can be commanded by the average computer programmer less but the things that people can build become so transformationally different right and I would argue that you are seeing little glimpses of that already right the the the I mean it is a overused phrase but a Cambrian explosion of people building apps already in this AI ecosystem that are in many cases them literally using chat GPT to do the coding without having coding experience themselves and and sort of figuring out how to wire it all together so you have all these sort of optimistic stuff that's both you know maybe we get to this point where people have a different sense of purpose and meaning and the natural tendency of humans to fill vacuums with more creation of all different types comes through to the Forum now the flip side is of course I think one the risks in the short term the utter displacement chaos you know leaving behind of the people who are unable to make that transition then two uh the actual discussions of safety questions and ask you know x-risk you know existential risk that that come up from AI um how do you view the safety conversation what's your perception of the AI safety conversation right now okay there's a lot of parts of that I just want to get to before we get to that one is yes it's very disruptive now this job cycle coming out of this recession is going to be very slow because a lot of people won't come back into the labor force which is that whole argument for more contact of easing so I think that is a a very real Moment In Time the other side of this is a Renaissance where humans are empowered in ways that they've never been in power before before and we will see some unbelievable things we will see unbelievable breakthroughs in medicines we'll see unbelievable breakthrough in healthcare in longevity spans all sorts of incredible things but then we've got the existential risk we've referred to you know it's basically the singularity now do we merge with the robots do the robots overrun us but there's some other existential risks I suppose to somebody at Google X um and he's like well we're not worried about that it's like you know that's further down the track I said what are you worried about because we're terrified that everybody's actually releasing the technology slower than they've actually got and he's like well what we're worried about is genetic Gene editing using AI because you can do rapid scientific tests which we've been unable to do you don't need the hypothesis testing scientific method because and he said we're worried that you can edit genes and and create a virus that says anybody with blue eyes should be exterminated I'm not really he's like yeah I hadn't thought about that it's like these are the things they're grappling with the other larger part of this is people hate this but I I know it to be true well I think it to be true is that okay we've got the shrinking population that's not going to change in fact the global population Peaks out in 20 2100 I think and the world will shrink all the Western world is shrinking and that seems great less competition for resources and you hear Elon saying this thing which is like the biggest problem with Humanity faces is less people first order thinking is well why is that a problem because we have more resources second order thinking is oh well um GDP is driven by demographic growth so GDP growth is slow third order thinking is the way you deal with a shrinking global population is robots on AI so if remember we talked about these unattended consequences of ways out the unintended consequence of all of this is it accelerates the use of AI because we've got this productivity need right that we talked about so this is why he wants to go to Mars it's driven by having another way out for Humanity and it sounds ludicrous but it's if you follow the Chain of Thought it's dead right a collapse in population growth in a indebted World leads to a need for productivity so that means that governments get behind productivity that we're seeing and that leads to an acceleration in technology if you've got less people you replace them with robots and AI problem is is robots and AI are exponential in their knowledge scaling and before you know it you've killed Humanity in which case you need to go somewhere else so anyway that's that's there's a lot of steps and phases to this and I can't remember what your what what I mean so what I asked in short was you know your perception of the AI safety conversation and that's I think a dimension of it is that when you start to see these patterns they're less disconnected than they seem Elon is not doing a random set of activities that are all distinct from one another but actually have a certain logic and you could disagree with the logic you could disagree with the the sort of assumption set but they are coherent with one another let's say um and I think that one point to hang on for a moment that is super Salient is uh is this idea that the AI safety conversation probably needs to include adversarial use of the technology where it already stands right now to say nothing of you know further developments on the path to you know Advanced general intelligence you've got 0.0 chance this is not the atom which requires State financing and funding even that's not clear anymore now Elon just set the biggest rocket in all existence into space with private funding it is you know you can limit the amount of uranium that people can process with nuclear technology this is everywhere and anywhere I don't know how you stop it what do you do shut down the Internet it's like crypto right it's like it's a cockroach you can't kill it and I don't think you can kill the AI and I think this ludicrous idea of alignment we must get them aligned with Humanity but then when you listen to Sam Altman speak and you say well how does this work he's like I don't know when you listen to him speak to Lex ridman he actually asked the honest question which is do you think this is Agi I I don't know what it is and it appears to learn and it appears not to learn in human ways which was the same observation deepmind had when they saw it play go and if you watch the documentary at first it was predictable then it lost a game then it became completely unpredictable and it won every single game ever because it never played another human move again essentially and so I don't know how you align it humans aren't aligned this is emad mostac's big point he's like I'm sorry but Pakistan AI is different to Indian AI because there's no alignment of the philosophical parts of society that the memes that run their economy their lives you know the religion societal construct the US cannot be the AI for the world because it doesn't fit China or the Philippines or Japan why should it because so I don't think there's alignment because humans aren't aligned except they don't want their Mutual destruction but they still seem to want to kill each other all day every day anyway um and I don't think you can regulate it and I think emad's Emma's move was genius with stability AI which is open source and also terrifying because he said this is the most powerful technology the world will ever invent and we cannot just give it to Google and Microsoft and let that run it for the world and then maybe a a Chinese version he said that that's not right because that's a mass destruction of global culture let alone it's worse than the Middle Eastern the us having all the oil that causes enough problem this would be a catastrophic situation so he's like so open source it and India can have its own AI Pakistan could have its own AI the Middle East everybody can have their own culturally relevant AI Etc brilliant makes it completely Unstoppable which is terrifying because it accelerates it so I I don't know the answer I think yeah there are no good answers here and so my argument with all of this is we don't know it's clear there's a lot of outcomes of which many of them are terrifying I'm just going to blindly say I'm going to throw myself into this and buy the ticket take the ride see where the it goes my I will reveal my hand a little bit so you know I've I think that the so I I'm very similar to you in the sense of uh there are things that feel um forces more powerful than our ability to sort of stop and slow things down and et cetera et cetera um I think that the conversation about AI safety is enormously important and I think that you have 100 million new people who now have who understand they have a stake in that After experiencing chat GPT and working through it for the first time and the the landscape of that discussion that they're coming into is uh doomed profits and shogoff memes on the one hand which are completely inaccessible largely driven by people who feel like they uncovered some secret of the world before and and are are almost uh you know condescending to everyone who didn't figure it out before so that's one side the other side of the accelerationists who are just excited to race the Terminator mode it feels like there's probably a real big space in the middle for those folks who are genuinely you know filled with wonder when they you know take some idea from their four-year-old kid and turn it into an image on mid-journey but who also are seeing that there's huge implications and I think it's important to have a different space for it so I kind of like your take of of uh of diving in but at least having that conversation I do think also that the open source piece is really important I I do but I also say what you say and maybe we're gonna have to self-opt in into restrictions there's got to be because I don't know how it can be done at governmental level so we're going to have to do it distributed nation state level so you know I align better with X Y um Ai and not the other one I don't I I don't know the answer because it is it's like crypto it's impossible you know the Chinese ban it nothing happens the Indians nothing happens the US stamps on it nothing happened I mean it's Unstoppable because it's distributed that's the whole point of it and it's the same with AI so I I get your point and I agree with it it's a really important conversation but who's going to have the conversation with whom and how and the tech companies when you see Sam Altman he's terrified I said where's this going he's like his answer I said where's this gonna be in five years he just laughed at me and said mate I didn't think we get chat gpt4 until the end of this year he said it came out in two months he said we have no understanding and then you think that Microsoft don't seem to care they've just seen a business opportunity so big that they can destroy their competitors and they're just pressing the nuke button I mean you're putting chat gpt4 and gpt4 overall in all office I don't know how many office users are up billion really what nobody's going to stop them because they can do it tomorrow but they're already doing it yeah and then every Bing browser and then Google are going to be forced to do it they're going to be forced into the Google browser and then G suite and everything and before you know it we've got 5 billion AI users how the hell do we stop that yeah I mean it's already happening I mean the number of people who have switched over to Bing you know you see the Google New York Times just reported the other day that Google started losing its because Samsung came to them a few months ago and were like we're actively considering removing Google as the default browser and putting Bing in this was a joke not not even five years ago two years ago if you had asked anyone the average person if in two years at the beginning of 2021 uh if they thought Microsoft Bing was going to be a realistic competitor or sort of like the leading technological browser no one would have said yes this raises another point that people aren't really thinking through yet our basic infrastructure of the internet is funded by advertising that trade-off how the hell is advertising going to work in this world this is why I can't get my head around the whole all of these businesses all of these freemium models all of the stuff that we grow up with podcasts everything it's all funded by advertising and you don't need most of it anymore because you don't have the search which drives I don't know what percent of GDP but it's big and it's all gone and I don't and again I think somewhere within this is partly to do with crypto partly to do with subscription models but yeah I don't I don't know again it's one of these things that I just know it's of a gigantic order of magnitude change and the world will never recover from it but what will be the new model because that's what I care about now it's like fine okay out with the old in within you I need to find what the bloody new thing is because you can't monetize it with with chat GPT that's the end of serving ads well it sounds like that's what Google's working on now too that they're they're the reimagine experience I think they're calling it or the the reporting is that it's project Magi at least internally I have no idea what it'll be called when it comes out is exactly that it's a fundamental ground up reimagining of search that's no longer 10 results per page it's this sort of chat mediated experience the fact that Google who has shaped the internet for 25 years with that sort of interface is being forced to to shift in that way I think is is profoundly telling yeah and Google and I've got to know the Google team and all of these big platforms when I I you know I spend a lot of time talking about web3 there's a lot of people who want it but this was the problem this was the sticking block the sticking block was we can't destroy our ad business and so it was being chipped Away by by web3 and it's now been nuked by AI maybe this is an accelerant for web 3. I don't know how the hell well meta have been clearly moving away from that model because they have to as well and Elon is as well with subscription base and you know I think there'll be token integration everything else as these platforms have to move off the ad model you you know you can use it for a period of time but then then it's gone but um I think it's important with any AI conversation to at some point reel yourself back from it and and shift out of the big existential questions to the um the joy and wonder and fun of these things that are now possible Right to imagine yourself in the Renaissance side one of the things that I've noticed you discussing a lot on Twitter and other places is you're clearly seeing a connection between some of these things that are now emerging neural Radiance Fields is one that we we went back and forth a little bit about and uh and you know interesting digital spaces metaverse web3 how have you been thinking about the intersection of metaverse nfts with this new world of of AI powered applications it's all the same thing it's the digitization of knowledge is happening now it's all the digitalization trend and it's logical place is a metaverse style experience you know we're all too anchored on snow crash or whatever to think of how a metaverse is but this is and I say this all the time this is a metaverse experience that you and I are in now so everything become if we talked about these digital societies that the world has to Pivot towards because we live in this world where we may not be working for corporations it may be a different world well so therefore humans are humans and we'd like to have a more interactive world of which we can operate and live in if we're going to spend most of our time there that's the metaverse and what we're seeing is the Nexus of all of these things so the faster the compute power the better the rendering we've seen that with Unreal Engine five you know there was a video out yesterday it was I couldn't tell it wasn't video we're seeing that with what's coming out of the AI so the compute power keeps accelerating with Moore's Law then the use of the compute power gets more efficient by AI and it makes these digital worlds become easier and I think I'm having a feeling that the next exponential age bomb is going to be the Apple um whatever it is their apple A Thon thing that happens I think it's in June because Apple are launching their VR stroke AR glasses and everyone's like yeah we'll say what you know Facebook I've had them been here before right yeah but Apple don't do that it's like you know there was a Kindle and then the iPad came out there was music stuff and then there was the iPod what have they got that can make this a game changer and I've been following this story for a while so somebody told me I can't remember who the hell it was told me oh by the way your iPhone pings your local environment like five million times a minute I'm like what it's like yeah it's mapping out your in total environment there's a reason why all the new Macs have like 30 of their GPU is not being used in the chat processing power right there's something coming so then I started hearing that apple had basically created a 3D map of the world again don't know how complete it is but that everything was this 3D contextualization which was this AR VR Nexus and then we started seeing the Nerf technology come in and you're like oh so it exists and you know I followed Robert scoble and he's been very good in in driving this conversation forwards it feels that apple is about to change the entire game in metaverse by creating a photo real 3D personalized map of the world of your world or other worlds which can all be strung together I don't even know what that means yet but I know again it changes everything because why do you and I you know you're in Upstate New York and I'm in the Cayman Islands we're in a 2d experience you know why are you not sitting in The Barbers chair and meet and US chatting right this new experience it's that it's the fact that we can go for a walk down by the river near you and chat while we're doing this it's like okay and that if you go back to our earlier conversation about how humans fit into this world in a digitized world where everything's fragmented into these digital sovereign states then this is an obvious Way Forward so I think the moment nobody's expecting is the metaverse moment potentially and it's going to come from Apple and not Facebook and then we've got the self-driving car moment that probably comes after that those are what I can see coming forward but you know I'm still trying to keep up with because you don't know where it's going to come from what the next big thing is I'm just getting a hunch that it's the Apple thing could be wrong yeah you know it's super interesting so you know I think it's funny it's very easy for people to count out technologies that didn't work at first blush and I think especially right now Facebook after having renamed itself meta and then you know crushing their meta Division metaverse division and you know it's it's it's subject to a little bit of ridicule but I I think I think that the idea that that sort of is uh the the end stamp on the idea of a metaverse is is pretty ridiculous the reason that I think that this take on Apple could be correct is one of the uh one of those seeming challenges for them has been the uh the difficulty of reconciling the type of data required and data collection approaches required by large language models and you know things of the sort that open AI has built with their approach to privacy right Apple has gotten huge leverage being the company that actually cares about privacy relative to the Googles and Facebooks of the world and so that creates a real challenge in term you know are they just going to suck user data that they then make sort of available for models that everyone has even if users opt-in it's sort of not the thing the type of thing that that Apple likes doing what I think is plausible then about what you're describing is the experience that you just mentioned who knows what Apple will actually come up with but that experience if it was just exactly that could be mediated almost entirely by data stored locally that was just from the user's actual real experience that didn't then have to kind of transcend into some you know board Global database that that sort of opens up these uncomfortable questions of data privacy well this is exactly the point so the the models for AI you get them down to about two gigabytes so the entire history of the internet and every single thing on it it's a two gigabyte file the compression files are so astonishing so that can fit on your iPhone so exactly to your point why are these M1 chips why does Apple have so much latency well because potentially they're going to fill the latency with localized data which is I think exactly your point is I could have my digital map of the world on my iPhone that is mine and it will have said oh by the way we've been mapping this for the last three years I want to start to round us out and I want to return to where we started I guess you know these three three big segments obviously they've been themes that we've woven together throughout crypto macro AI over the next six months what do you see happening in each of these areas and maybe maybe we could start with macro because as a frame yeah macro is the easiest one uh because there's a lot of forward-looking indicators uh there's ways we understand of how things connect so my forecast since about March of last year using my forward looking indicators was that the economy bottoms March April May so that would be an ism survey of hitting about let's say 40 which means roughly translated negative two percent GDP so no great disastrous recession but it always exposed to something which is the banking system this time around now the market forward saw all of this and it started rallying cryptos the most furthest Advance the outcome of a recession is more cowbell as I like to say and the more cowbell is more stimulus more stimulus meets that we've also got an election year so the probabilities are even higher than this fiscal so we've probably got a lot of stimulus to come so six months forward the economy will have troughed whether we've got positive GDP growth or not not clear but it'll be on its way back to recovery but the recovery is going to be slow because these jobs are not coming back we've got commercial real estate overhang um but the markets are likely to be very strong because of stimulus which is the key driver plus the technology adoptions that are going to be everywhere so the macro for me is the worst was behind us I think October was the low of the markets I've been positive ever since and I'm super bullish technology crypto those are the the two big things and bullish endlessly in perpetuity but really for this cycle which ends in some time remember the ism cycle that comes every three and a half years it would come and give us problems sometime the end back in 2025 which is like the same as the Bitcoin halving cycle it's all the same right before we dive into speaking of before we dive into sort of the crypto and AI Dimension this question I actually wanted to just uh go back to the the commercial real estate piece just for a minute obviously this is something that we didn't mention but people are you know a lot of eyes are on this uh you know a lot of eyes are looking at you know sort of similar similar issues that drove the banking crisis in terms of sort of you know needing to roll over debt in a highest higher interest rate environment how do you see this all getting resolved or does it get resolved so we cannot have a full-scale banking crisis ever again this people need to get their heads around this the world's changed in 2009 that existential risk of the collapse of the global banking system in developed countries does not exist because of quantitative easing and the Europeans proved it in 2012 and the US is just proving it again because what happens is you shove it on the bank balance sheet of the Central Bank so the existential crisis can't happen which is the total collapse but the payback is oh your money gets debased and these asset prices go up and you're poorer your future self is poorer because you can't buy as many future to serve um future consumption points you know which is what an asset is so yeah I'm sorry I've lost trend of thought but yes so okay so so the the banking crisis but it happens slowly right so the slowly thing is the commercial real estate is not going away nobody's going back to the office I spoke to one of the biggest Pension funds in the United States the guy runs their real estate portfolios like they're going to be plowing over bulldozing big cities I'm like well can't you convert them to residential it's like well most it can't be for zoning and and how they're built so there's a whole bunch of stuff that's just going to go fallow um and that's going to have to be taken off the banks the US has got too many banks it's overbanked um anyway much like Europe used to be Europe's shrinking number of banks so the US will shrink in number of Banks and a lot of the long-term stress ends up on the FED balance sheet which is I they'll take collateral give loans to the banks to allow them to try and work their way out of it until they all merge or slowly die but they'll they try they tend to merge with each other which is what's happened in Europe do you think that commercial real estate basically just becomes a new approved asset class for the bank term funding program or something like it yeah same as Europe famous Europe I mean they just took all of the commercial real estate loans yeah the FED did it with mortgage-backed Securities don't forget especially now that we see it coming right there's a sort of you know test period I mean there's a fairly good argument that Silicon Valley Bank uh is a highly useful uh a highly useful sort of collapse for the FED to get out of something that could have been a lot worse if it was in a different type of environment right you had sort of the you know the ability is relatively you know small I mean the second biggest bank failure in U.S history but still compared to what it could have been relatively small and uh a narrative that allowed enough space to prevent sort of full-on panic because it could be written off as just Tech or just crypto or whatever right so go back to the everything code what you need is you need to get inflation down because you need to get interest payments down because if not you have to debase the currency even further right you have to get this down the best single way of doing this is by engineering a crisis so if you over tighten and you know you over tighten you're going to get a double win you're definitely sure inflation is not going to come back and you're definitely sure you can cut rates 300 basis points and sort sort out what needs to happen because you know you've got to make the interest payments if you see this thing of I we need to make the interest payments and we've all agreed How We Do It then it becomes much clearer to see somebody talked about also the daisy chaining of um central banks and their government bonds how they kind of support each other's Bond markets and I think that's probably true too I think they know I've always argued that everybody on Twitter will assume a central Bankers are all morons and they don't see what's going on and my guess is they probably see more than what's going on than you understand and you're not even playing the same game that they're playing and it's not because they're Geniuses is because they have seen what is happening so I think as I said there is a globalized agreement on the massive push to Green energy not just for global warming basis but also because of the productivity change that needs to happen and the geopolitical change I think there's a push to keep rates as low as possible and use the central bank balance sheets to fund interest payments because if not the game falls apart until the productivity Miracle catches up okay so that's macro you know in a nutshell the nice simple simple explanation uh next six months crypto and AI what are you seeing what do you think it's next six months crypto very strong I don't think it's a replay of 2019 which was a longer pullback while Global central bank balance sheets uh shrank for a period of time um I think knowing what's going on in the world and where it's going we will probably accelerate I think it looks more like 2016 15 cycle which was a big spurt up which was I think we're still in the middle of then alongside ways correction for five months or whatever and then another explosion higher as you really start to see the central banks kick in so I think so I'm very very positive crypto but more importantly a lot of money went in in VC into the space and there was a lot of people building products so the next phase of what adoption looks like will come and I don't know what it is could come from anywhere could come from gaming could come from digital ID could come from uh brands in the nft and web 3 space could come from D5 could I I don't know but it's coming so I think that's very interesting so I'm very bullish on crypto overall um I also think that you know I also run an asset management business called exponential age Asset Management I'm just using the exponential age everywhere around it and um that is a fund of hedge funds to invest in digital asset hedge funds what's fascinating is the global hedge fund industry in tradfy is three trillion dollars that's all pension fund money and Sovereign wealth fund money in in high net worth and raas the digital asset hedge fund so that all crypto hedge funds added together are about 5 billion one percent of the of the size so I think we're going to see a lot of capsule flying into the space proper Capital not just retail Capital but sticky long-term Mega Capital flows into the space which is needed the secondary markets are not liquid which is why they're so volatile so I think that's going to be very interesting as well so crypto bullish AI I'm gonna I'm gonna ER on the side of emad which is it's unforecastable it's unforecastful where it will be in six months time um what I do know is every single person we speak to will be scrambling to try and figure out how to use it and we don't know how we use it and it was I remember very well that 97 8 9 2000 phase in the internet there was just like millions of businesses launching of which 99 of them were nothing because everyone's building on top of chat gpt4 99 will fail people are going to have to figure out what is the killer model here is it the data set is it the ux is it the is it the model itself we don't know so I think it's just going to be kind of hair on fire shocking in its growth and then with that is the next phase of the exponential age as well what is the next technology to ignite and then we've got to deal with crypto AI metaverse or whatever the virtual reality and then oh my God then we need to deal with genetic sciences and then we've got to deal with self-driving cars we'll have all these balls in the air we're trying to figure it all out it's going to be hilarious hilarious because we have no idea so there is this meme that I posted uh a couple of I mean I guess a week ago now it feels like a million weeks but it's a picture of a metronome and it was in the context of Auto GPT but I think it is more broadly applicable and so metronome obviously it you know kicks back and forth and so on the one hand it said uh it said I'm so excited about the future and then on the other arm it said we're all gonna die where do you find yourself on this spectrum of optimism to pessimism and every kind of confusing question in between I have one secret hack I don't have kids so I'm wildly optimistic [Laughter] um you know I have two kids I have two kids and I'm also domestic yeah look I I honestly think it's a Renaissance yeah but you know it really is to me is how fast Quantum Computing comes in a scalable format uh that's when it gets really scary um and I think that's probably still Famous Last Words 20 years plus out that governments can can restrict because it's really expensive so if that's the the final leg that causes the end of humanity that is like nuclear power you can stop that or restrict it and maybe therefore we have a much longer Renaissance than expected but I'm yeah I'm I'm very positive on what this can do yes I understand societal constructs will change uh I do think it's the fourth turning moment that starts in 2008 all part of the same big Mega Trend you know the macro crypto AI exponentials all part the same thing and we are lucky to be alive because it's going to be incredibly exciting perfect way to end a wonderful conversation always wonderful and great to have you on uh on the breakdown Raul and uh look forward to getting back together in three months when uh there's new AI overlords that we're all hanging out with yeah I loved it hopefully there was quite a lot for people there so I hope everybody enjoys it and you can find me on Twitter or anything if you've got any questions eminently available and you know no shortage of places to read your thoughts to which I think everyone should go do all right awesome we'll talk soon thank you

Channel: Real Vision

Views: 122,289

Keywords: Finance, Markets, Economy, Stock Market, Investing, Trading, Financial Literacy, Recession, Interview, Conversation, Strategy, Insight, Analysis, Thesis, Short Seller, Real Vision, Equities, Raoul Pal, Inflation, Stagflation, Monetary Policy, Money, Federal Reserve, Fed, Unraveling the Exponential Age: AI, Crypto, QE & Beyond!, nathaniel whittemore, the breakdown podcast, raoul pal podcast, realvision, crypto podcast, ai podcast, finance podcast, financial markets podcast, money podcast

Id: iOt7580eKA8

Length: 111min 12sec (6672 seconds)

Published: Sun May 07 2023