Raoul Pal on The Exponential Age and the Everything Code: AI, Crypto, QE and Beyond

26:15I mean, Is that another way of kind of putting it? That we correctly felt that there were hidden forces, but maybe we just didn't put our finger on exactly what those forces were? Yeah. Well, 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, but that's what happened. So that demographic force, which is us, created the death of the American dream, because there was too many people to share the pie.

26:50Then we add globalization of the labor force, and then we add technology, and people have no chance. So they borrow 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 coasts. It becomes a political divide. It's not to do with politics. It 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 network communities that we're seeing formed where people are getting together to take the system in their own hands in different ways.

27:29It 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 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 just sort of being wishy-washy about the inflation battle.

28:14And that was what caused inflation. Now, maybe some people get into structural changes in terms of the oil market and things like that and 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 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 70s that would have influenced how problematic the inflation that was always going to show up or potentially are probably always going to show up because of these demographic factors would become.

29:00I guess the question then becomes now looking at where things are here in 2023. What is the band of agency that policymakers have, that markets have, as relates to sort of these larger structural forces? So for example, as we look towards this$12 to$14 trillion balance sheet, what are the sort of inflection point type decisions that policymakers could or couldn't make that will or won't get us there? You know, 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's extremely powerful driving forces that every sort of active agency has to contend with.

29:47But within that, how much room to shape things do people actually have, be they individuals, markets, or policymakers? 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 might have had slower growth over time, but the system wouldn't have fallen apart. And it's probably Greenspan 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.

30:23So here, we're 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, 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 doomers saying, well, we just want to blow everything up. I don't think we can. It's too big, because the cost to society and humanity is even larger than the costs of what is happening now, which is driving the 1 % versus the 99 % and all of the other issues we've got going on.

31:08So 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. All these trends have been in place, but they're now about to hit adoption phase. So crypto is one of them. We're only at 300 million people.

31:43The next time we poke our heads above the water in three years' time, we'll be there a billion people, and then 4 billion people, whatever the numbers work out to be. AI has been coming for ages. Then it's like a nuclear bomb hits in one go, because it was so much faster in its adoption than anything humanity has ever faced. We've just brought knowledge, and we'll go into AI later, but we've just brought knowledge, infinite knowledge, scalable knowledge into the global economic system. And it happened in a three-week period when GPT-4 came out. It went from zero to 100 million users in five weeks.

32:21I mean, oh my god. And we're all scrambling. 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 a little bit about how all the Uber drivers and all the bus drivers and everybody's been laid off because of self-driving cars. That bomb 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.

32:52Next minute, AI comes along and we're like, is this generative? Is this AGI? We don't even know anymore. 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. Tesla are not the only people doing this, but he actually owns 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.

33:24So we've got robots coming. We've also got genetic scientists. When you add AI into biotechnology, you create outcomes much faster. So we'll see huge breakthroughs in medicines. 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. Yeah, it was a successful launch, but failed to decouple its engine or whatever, and then blew up afterwards. But generally speaking, what he's doing in space and many, many others is another whole quantum leap that most people haven't got their heads around yet.

34:09I mean, the fact that we've got Wi-Fi all around the world now coming from satellites is 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 is the forthcoming 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?

34:52AI alone is Reed's law. which is Metcalfe's Law Squared, which is why it's so hard to deal with. And all of these technologies together are all Reid'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 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 f***ed. We can't increase debt because we got to the end game in 2008.

35:31So 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 joule 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 100 odd years. Basically, if you do the oil price adjusted by inflation, it's roughly been around the same level for a very, very long time.

36:09But when you look at what's happening, is 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.

36:57It'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$40 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$2, the f*** does that mean? 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.

37:30And that is why the Inflation Reduction Act, all the green stuff, everything happening. Europe, I mean, 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 happening here, is 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. It changes everything for everybody forever. Hey, everyone. We're going to take another quick break and hear a word from our partners.

38:09I want to come back to 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 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.

38:46The 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 interact with the trajectory of each other, you know, of the sort of demographic changes, of the technology changes, how do you think about geopolitical realignment right now? Obviously, moving from a, you know, strictly unipolar world to a multipolar 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 of resources was global, and the US was essentially the US, United Nations were the policemen of those resources.

39:30And 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, OK, 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, or we need to change what supply chains are entirely. So the biggest supply chain issue for the world is energy.

40:06So again, it goes back to how does geopolitics shape this? First thing you need to do is be energy independent. The US is energy independent, which is why it's always been slower on a lot of the green stuff. But Europe's not energy independent, which means it needs to be faster. It 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. It's the system of the dollar being so dominant that the US economic cycle is the global economic cycle. And actually, the US has captured a lot of the benefits of that, and everybody else has had downsides.

40:40So people are like, we've had enough of this. The SWIFT payment system was the globalized weapon. And even the EU don't want the SWIFT payment system anymore. Nobody does, because nobody wants reliance. So we're splitting into different factions in this multipolar world that is having real effects on technology, because now it's a technology race as well, about 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 completely change the game on how much data can get crunched in one go, everything goes again.

41:22The ridiculousness of what is happening. So yes, these things all weave together. They're all part of the same narrative. The only big shift outside of that narrative was obviously China coming in to the WTO. 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, it was like you're sitting in the bath, and then an elephant jumps in your bath, and all the water gets displaced. That's what happened with China. And so it's been struggling to find its place.

41:56And this is going to be ongoing. But the Chinese population is shrinking too. So their economic power is going to go down, because they've got ridiculous debts, aging population. So they have to solve the productivity as well. India is different. India has an average age of 28 and 1.4 billion people. Okay, 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's a complicated situation, a world where knowledge has been replaced by computers. One thing I want to come to, again, I'm flagging all these things for later, but what kinetic war, especially major power war, might do to this.

42:37But let's not start there because that's a whole thread, I think. 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 US 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 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 overaggressive with sanctions, etc.

43:15How much, you know, 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 de-dollarization idea. But what do you think of the dollar's role in the near term with all of this? The dollar was so big because the US 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.

43:50There'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 as large a part. 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. China 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.

44:27Great. 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 lag by 18 months of the price of the dollar and QE. So the dollar rises in line with quantitative easing, but with an 18-month lag.

45:09It's interesting. So another way to put this, or to try to connect the dots, is one of the theses of the everything code that you laid out is that the debt that is accumulated from, again, this set of decisions that have been made over 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.

45:49So even when people are correctly identifying the phenomena 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.

46:38And seeing everybody lose everything is what got me into crypto, because it gave me a sense of agency. And 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 I think it converged in 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.

47:31Of 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, 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 is going to be my next question is, how much do you think from a global adoption perspective, 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 by way of example, you know, the Russian Central Bank this week talking about exploring a cryptocurrency licensing regime just for the sort of, you know, for normal day-to-day transactions.

48:24I 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, you know, which are sort of the exception, not the rule, deciding that 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 a debt regime for Bitcoin and other cryptos to play a role on that larger scale? So going back to 2008, the big thing that changed was we lost trust. We lost trust in the system.

49:00People 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. Foreign governments have lost trust. So nobody has trust. So well, Well, crypto is a trust-based system, which is interesting. But what it means that, OK, if you don't trust anybody, you need something that helps you. That traditionally was played by gold. 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 sizable. So crypto played a role in all of this.

49:39And 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%. 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, in fact, better than anything else. And because we've got this ongoing adoption of the technology. So when you go to, firstly, who is the biggest players in the world that are potentially moving into this market?

50:18I think you and I have even talked 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 US 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 all 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 US treasuries, then why would anybody want to hold US treasuries over an extended period of time?

50:51You either have to be friends with 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. And I think for individuals, because of the lack of trust, it's one thing we can trust because it's not driven by a 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 Gensler is like enemy number one, because he represents the old system, the system that let us all down.

51:23And he's kind of say, look, we're there to protect you. And everyone's going, 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 Web3 that lays on top of it, how can you use this technology in other new and unique ways, is the driver that turns it into a Metcalfe's Law adoption model because you're building systems on top of a network itself. 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 yield at 12 months.

52:02It means you've got a money market curve for the internet. And that gives you a value of money, gives you an ability to price risk. What is a yield on a CeFi platform, risk-adjusted versus ETH pure staking? It's very interesting, because you're creating, I think ETH is actually almost a complete global digital economy right now, which is very interesting to me. And 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. and haven't really realized it, we kind of see bits of it. So, okay, so let's jump off from this idea of trust.

52:43This is something that I was digging into with Sergey from Chainlink a couple weeks ago. It's fascinating that we have sort of converging trends that Bitcoin and crypto and blockchains 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 crumbling trust in 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 outcomes that are possible. There are more and more people who are kind of looking at almost the underlying social physics of the internet and saying that there's sort of the period of consensus reality that we had shaped by media in America for the back half of last century, the beginning of this one, was sort of a historical accident.

53:30And 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. Well, in that, 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 who owns what parts of that ledger initially, but it becomes the potential is for it to be sources of truth elsewhere.

54:02It's come up a lot now, very nascently, but as AI has become, generative AI has become so omnipresent. And we feel ourselves, I think, starting to shift to a default assumption that things are, that we see 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 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 where I'd love to start 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 ChatGPT in November of last year, plus sort of the advance of Midjourney and Dali and Stable Diffusion, will be seen as the sort of inflection point moment.

55:01But particularly that five-week period that you referenced before, where it went from zero to 100 million users of ChatGPT, which was, you know, TikTok had previously been the fastest to 100 million users. And that happened over the course of eight or nine months. So, you know, 4x faster than that. You've 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, Emad Mostak, who's now become quite well known, Emad was a macro guy.

55:39I'd known him for years. He'd been on Real Vision to talk about emerging markets and stuff. Macro 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 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 he was really good. So anyway, thought nothing of it.

56:14And I saw him on Twitter starting to talk about show some stable diffusion images and talk about AI. So I just hit him up and said, what are you up to? So he said, look, we need to talk. So I got him on real list 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, ChatGPT3 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. Everybody went, s**t, I did not know any of this.

56:53And then ChatGPT4 came out. And then it just went, you know, the biggest thing we've ever seen. So yeah, 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 to video, video to video. He's 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 going to trade AI so they can compete, people who've never competed before.

57:37And 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 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 moment, that zero to 100 million moment, was so often, even in crypto, especially crypto, crypto is a great example, these things that people who are deep in them understand as the future TM, right?

58:28Because of, you know, the inevitable trend lines, right? Like you laid out in the first hour of this conversation, all the reasons that, 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 inevitable than any amount of Gensler screaming at Congress or vice versa can do, even if we have to live through that in the short term. It's why that, you know, 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?

58:58That'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? It's just sort of the way that it is. Now, that might be different in different kind of countries that have different sort of monetary regimes. 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, again, like I said, the combination, I think, of chat GPT, a chat interface sitting on top of GPT-4 or GPT-3.5 even, and the ability to use the mid journeys and DALYs and stable diffusions of the world has made people see way faster what the implications are for themselves.

59:52I mean, they feel it. Like if you go on TikTok 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 ChatGPT 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 ChatGPT changes copywriting and marketing. 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.

1:00:43Once 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, 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 careers. So this kind of gets into the productivity piece. Two, 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.

1:01:20Or 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, 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.

1:01:55And it was a thread about the rise of autonomous vehicles in California and how this guy, AI, whether he's in the industry, he's around tech industries. Three years ago, I'd see a couple of these things, and now I see them every day, 10 times a day. I looked around me in New York City, and every car was an Uber, a taxi, a bus driver. 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.

1:02:36Why 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 at 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 we just don't need as many humans.

1:03:19That'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, we've 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. One of my hypotheses for Web3 was that the rise of all of this is leading to a need to support incomes for people. This is a universal basic income argument.

1:04:00And 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 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 Web3, in these decentralized 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.

1:04:46And we're seeing that all over the place now. It's pretty nascent, but it's everywhere. 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? Could it be for leisure output? It doesn't really matter. Could it be for cultural output? For sure. For sure, Louis Vuitton understand this. For sure, Nike understands this. is the loyalty of Web3 and tokenized assets, whether it's a loyalty currency, community currency like Starbucks, or whether it's an NFT like Adidas, these things are making people participate in the success of those brands, those cultures.

1:05:32And we will see this in music, and 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 supercomputing AI geniuses with amazing prompt skills. And even prompt skills go away pretty soon. And there'll be such a 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 ChatGPT4. So there's excess content, excess of everything else. And we're going to need a purpose and a meaning and a place of trust. And a place of trust is these digital societies online.

1:06:07It'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. You and I, we've never met. But I've spoken to you so many times. I'll consider you a friend. We'll hit 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 FinTwit and CryptoTwitter. and those are the overlaps. And we're both kind of in the media area as well. So there's these number of overlaps of these digital societies that we both belong to.

1:06:45And 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 and move to the next one. It's really hard for you to leave the United States. My wife is a US citizen and we live in the Cayman Islands. And it's a nightmare because US tax and US jurisdiction, because the US is actually a very unfree place once you travel.

1:07:31You can't open a bank account. You can't do anything. It's actually very difficult. But these digital sovereign states, you can just sell it. You just move on and move on to the next one. Don't like Bored Ape, I want to join CryptoPunks. I don't like Ethereum, I want to join Solana. I like Bitcoin, I want to just own Bitcoin. It becomes very, very, very interesting. So I think there's a solve there. So let's go to the broader one, which is society itself. of, 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?

1:08:14Because 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 all of this kind of megatrends going on. And for society itself, I don't know how we can keep up and how we do not draw the dot, dot, dot, add quantum computing end of humanity. 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.

1:09:06That's very hard. I think that there's one of the reasons that I'm so attracted to this conversation. The stakes are so high, obviously, but it's also 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?

1:09:48There are arguments that are pretty compelling that 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. I mean, it is an 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 sort of figuring out how to wire it all together.

1:10:28So you have all this 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 fore. Now, the flip side is, of course, I think one, the risks in the short term, the utter displacement, chaos, you know, leaving behind are the people who are unable to make that transition. But then two, the actual discussions of safety questions, existential risk that come up from AI. How do you view the safety conversation? What's your perception of the AI safety conversation right now?

1:11:12RAOUL PAL 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 quantitative easing. So I think that is 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 empowered 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.

1:11:57But then we've got the existential risk. We've referred to, it's basically the singularity. Do we merge with the robots? Do the robots overrun us? But there's some other existential risk. I spoke to somebody at Google X. And he's like, well, we're not worried about that. It's like, 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.

1:12:34You don't need the hypothesis testing scientific method. And he said, we're worried that you can edit genes and create a virus that says anybody with blue eyes should be exterminated. I'm like, really? He's like, yeah. I hadn't even thought about that. These are the things they're grappling with. The other larger part of this is, people hate this, but 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 2100, I think, and the world will shrink. All the Western world is shrinking.

1:13:11And that seems great, less competition for resources. And you hear Elon saying this thing, which is like, the biggest problem 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, Well, 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 and AI. So remember, we talked about these unintended 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 that we talked about.

1:13:55So this is why he wants to go to Mars. It's driven by having another way out for humanity. And it sounds ludicrous, but 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.

1:14:34So anyway, there's a lot of steps and phases to this. And I can't remember what your... No, that's... I mean, so what I asked in short was, you know, your perception of the AI safety conversation. 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 can disagree with the logic. You can disagree with the sort of assumption set, but they are coherent with one another, let's say. And I think that one point to hang on for a moment that is super salient 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 further developments on the path to advanced general intelligence.

1:15:26You'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 sent the biggest rocket in all existence into space with private funding. 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?

1:16:10He'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 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. So I don't know how you align it. Humans aren't aligned. This is Emad Mostak's big point.

1:16:47He's like, I'm sorry, but Pakistan AI is different to Indian AI, because there's no alignment of the philosophical parts of society, the memes that run their lives, 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? 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. And I don't think you can regulate it. And I think Emad's move was genius with stability AI, which is open source, and also terrifying.

1:17:30Because 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 Chinese version. He said, that's not right, because that's the mass destruction of global culture. Let alone, it's worse than the Middle East and 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 can have its own AI, the Middle East, everybody can have their own culturally relevant AI, et cetera.

1:18:08Brilliant. Makes it completely unstoppable, which is terrifying because it accelerates it. So I don't know the answer. I think 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 f*** goes. I will reveal my hand a little bit. So, you know, I think that the, so I'm very similar to you in the sense of there are things that feel forces more powerful than our ability to sort of stop and slow things down and etc, etc.

1:18:51I 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 ChatGPT and working through it for the first time. And the landscape of that discussion that they're coming into is doom profits and Shogoth 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 are almost condescending to everyone who didn't figure it out before. So that's one side. The other side are the accelerationists who are just excited to race to Terminator mode.

1:19:36It 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 MidJourney, 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 diving in, but at least having that conversation. I do think also that the open source piece is really important. I do, but I also see what you say, and maybe we're going to have to self-opt in into restrictions, because I don't know how it can be done at governmental level.

1:20:13So we're going to have to do it at distributed nation state level. So I align better with X, Y, AI, and not the other one. I don't know the answer because it's like crypto. It's impossible. The Chinese ban it, nothing happens. The Indians ban it, 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 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.

1:20:52I asked him, I said, where's this going? His answer, I said, where's this going to be in five years? He just laughed at me and said, mate, I didn't think we'd get chat GPT-4 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 GPT-4, GPT-4 overall, in all office? I don't know how many office users there are, a billion? Really? And nobody's going going to stop them because they can do it tomorrow.

1:21:33Well, they're already doing it. 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 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.

1:22:08This was a joke, 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, 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. So 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 what I can't get my head around. All of these businesses, all of these freemium models, all of the stuff that we grew up with, podcasts, everything, it's all funded by advertising.

1:22:52And you don't need most of it anymore, because you don't have the search, which drives, I don't know what percentage of GDP, but it's big. And it's all gone. And again, I think somewhere within this is partly to do with crypto, partly to do with subscription models. But yeah, 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 with the new. I need to find what the bloody new thing is. Because you can't monetize it with chat GPT.

1:23:31That's the end of serving ads. Well, it sounds like that's what Google's working on now too. The re-imagined experience, I think they're calling it, or 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 shift in that way, I think is profoundly telling. Yeah, and I got to know the Google team and all of these big platforms.

1:24:07When I, you know, I spend a lot of time talking to them 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 Web3, and it's now been nuked by AI. Maybe this is an accelerant for Web3. 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 I think there'll be token integration, everything else. as these platforms have to move off the ad model. You can use it for a period of time, but then it's gone.

1:24:47I think it's important with any AI conversation to at some point reel yourself back from it and shift out of the big existential questions to 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 went back and forth a little bit about. And interesting digital spaces, metaverse, web three. How have you been thinking about the intersection of metaverse NFTs with this new world of AI powered applications?

1:25:29It's all the same thing. It's the digitization of knowledge is happening now. It's all the digitization trend. And it's logical places a metaverse style experience. experience. 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.

1:26:11That'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 5. There was a video out yesterday. 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, whatever it is, their Apple-a-thon thing that happens.

1:26:52I think it's in June. Because Apple are launching their VR stroke AR glasses. And everyone's like, yeah, well, so what? Facebook have had their - In here before, right? Yeah. But Apple don't do that. It's like 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 5 million times a minute. I'm like, what? Yeah, it's mapping out your total environment.

1:27:32There's a reason why all the new Macs have like 30 % of their GPU is not being used. In the chip, 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 coming. And you're like, oh, so it exists. And I follow Robert Scoble, and he's been very good 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.

1:28:23I 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 barber's chair 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.

1:29:02So 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 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. But I'm just getting a hunch that it's the Apple thing. Could be wrong. Yeah, no, 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 subject to a little bit of ridicule.

1:29:45But I think that the idea that that sort of is the end stamp on the idea of a metaverse is pretty ridiculous. The reason that I think that this take on Apple could be correct is one of the seeming challenges for them has been the difficulty of reconciling the type of data required and data collection approaches required by large language models and things of the sort that OpenAI 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.

1:30:27Are they just going to suck user data in that they then make sort of available for models that everyone has? Even if users opt in, it's sort of not the type of thing 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, Borg global database that sort of opens up these uncomfortable questions of data privacy.

1:31:04Well, this is exactly the point. So 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 is a two gigabyte file. The compression files are so astonishing. So that can fit in 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.

1:31:42I want to start to round us out. And I want to return to where we started, I guess, you know, these 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? Maybe we could start with macro as a frame. Yeah, macro is the easiest one because there's a lot of forward-looking indicators. 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 2 % GDP.

1:32:30So no great disastrous recession, but it always exposes something, which is the banking system this time around. Now, the market forward saw all of this, and it started rallying. Crypto's 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 means that. We've also got an election year, so the probabilities are even higher, and then there's 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.

1:33:09But the recovery is going to be slow because these jobs are not coming back. We've got commercial real estate overhang. 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. It's I've been positive ever since. And I'm super bullish. Technology, crypto. Those are 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.

1:33:48It would come and give us problems sometime the end back in the 2025, which is like the same as the Bitcoin halving cycle. It's all the same, right? Before we dive into the crypto and AI dimension of this question, I actually wanted to just go back to the commercial real estate piece just for a minute. Obviously, this is something that we didn't mention, but a lot of eyes are on this. A lot of eyes are looking at similar issues that drove the banking crisis in terms of needing to roll over debt in a higher interest rate environment. How do you see this all getting resolved or does it get resolved?

1:34:24So we cannot have a full-scale banking crisis ever again. 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 consumption points, which is what an asset is.

1:35:04So the banking crisis can't happen again. Can't happen at scale, 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 the real estate portfolio, 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 of it can't be for zoning and how they're built. There's a whole bunch of stuff that's just going to go fallow. That's going to have to be taken off the banks. The US has got too many banks.

1:35:36It's overbanked anyway, much like Europe used to be. Europe's shrinking number of banks. 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.e. 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 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. Famous Europe. I mean, they just took all the commercial real estate loans.

1:36:10The Fed did it with mortgage-backed securities, don't forget. Especially now that we see it coming, right? There's a sort of test period. There's a fairly good argument that Silicon Valley Bank is 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 ability is relatively small. I mean, it's the second biggest bank failure in US history, but still compared to what It could have been relatively small. And 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?

1:36:49So 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 out what needs to happen because you know you've got to make the interest payments. If you see this thing of, we need to make the interest payments, and we've all agreed how we do it, then it becomes much clearer to see.

1:37:30Somebody talked about also the daisy chaining of 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 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, it's 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.

1:38:08I think there was 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 in a nutshell, a nice, simple explanation. Next six months, crypto and AI. What are you seeing? What are you thinking about? ED HARRISON 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 shrank for a period of time. I think knowing what's going on in the world, where it's going, we will probably accelerate.

1:38:49So I think it looks more like 2016, 15 cycle, which was a big spurt up, which I think we're still in the middle of, then a long sideways correction for five months or whatever, and then another explosion higher as you really start to see the central banks kick in. So I'm very, very positive crypto. But more importantly, a lot of money went 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. It could come from anywhere. Could come from gaming, could come from digital ID, could come from brands in the NFT and Web3 space, could come from DeFi.

1:39:29I don't know, but it's coming. So I think that's very interesting. So I'm very bullish on crypto overall. I also think that I also run an asset management business called Exponential Age Asset Management. I'm just using that exponential age everywhere. And that is a fund of hedge funds to invest in digital asset hedge funds. What's fascinating is the global hedge fund industry in TradFi is$3 trillion. That's all pension fund money and sovereign wealth fund money and high net worth and RAAs. The digital asset hedge fund, so that all crypto hedge funds added together are about 5 billion. It's like 1 % of the size.

1:40:12So I think we're going to see a lot of capital flowing 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 going to err on the side of EMAD, which is it's unforecastable. It's unforecastable where it will be in six months' time. 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.

1:40:46And 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 GPT-4 and 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 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.

1:41:29And 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, and we're trying to figure it all out. It's going to be hilarious, hilarious, because we have no idea. So there was this meme that I posted, 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, ticks back and forth. And so on the one hand, it said, I'm so excited about the future. And then on the other arm, it said, we're all going to die.

1:42:02Where 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. I have two kids and I'm also optimistic. Yeah, look, I honestly think it's a renaissance. But it really is to me is how fast quantum computing comes in a scalable format. That's when it gets really scary. And I think that's probably still, famous last words, 20 years plus out, that governments can restrict because it's really expensive. So if that's the final leg that causes the end of humanity, that is like nuclear power.

1:42:46You can stop that or restrict it. And maybe, therefore, we have a much longer renaissance than expected. But yeah, I'm very positive on what this can do. Yes, I understand societal constructs will change. I do think it's the fourth turning moment that started in 2008, all part of the same big mega trend. The macro, crypto, AI, exponential age, all part of 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 the breakdown, Raul. And look forward to getting back together in three months when there's new AI overlords that we're all hanging out with.

1:43:26Yeah, 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. Yeah, 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. All right, guys, NLW back here for just the quickest of quick wrap ups. At the end of our conversation, we touched on whether to be optimistic or pessimistic. And I think there are tremendous changes we're in store for. And when it comes to my take on this, I think that there are tremendous changes we're in store for.

1:44:01I don't think we fully grasp them all, because it's nearly impossible to before we're living through them. But I just can't believe that any other position, aside from optimism and what we can create and build, has really ever made sense. Both the challenges and the opportunities of the future that is hurtling towards us dwarf many of the things we've experienced in the past. But why not choose to believe that we're up for the challenge? and then go try to make it so. That's the self-fulfilling prophecy that I'm most interested in and that I hope we can help in some small way with these shows and with the Breakdown Network as a whole.

1:44:36Anyways, guys, I appreciate you listening. As always, thanks again to Raul for joining me. Until next time, be safe and take care of each other. Peace. What's up, revolutionaries? Thanks for tuning in. For more content like this, head over to realvision.com and get unfiltered access to the very best, brightest and biggest names in finance.