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