What to do when everything tanks 🐻
China's power moves, the precariousness of centralised finance, and thoughts on wealth, infinite games, and digital futures. This is Issue #019 of Forward.
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We need to talk about China.
The Chinese government has been making some bold swings recently, the latest of which was a directive to order tutoring companies in the country to become non-profits — erasing 1.5 trillion dollars of market value in one fell swoop.
Jack Ma must be nodding along in sympathy.
The reasons attributed to the government’s increasingly tight grip on booming venture capital funded companies range from skyrocketing costs incurred by the middle class to a bid to garner public support ahead of an upcoming leadership transition.
Or, as Bloomberg points out, China’s leaders have just remembered their Communist roots.
Beijing is betting that the gravitational pull of an economy that will likely continue to generate more billions of dollars of growth opportunities than any other gives them leeway to throw their weight around, even if some global investors get whacked in the process.
For a zoomed out view on why the Xi Jinping regime is doing what it’s doing, we highly recommend reading Ray Dalio’s take on the matter.
🔗 Understanding China’s Recent Moves in Its Capital Markets
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More centralization? Excellent 🙄
You’ve probably heard of Central Bank Digital Currency (CBDC). As pretty much every central bank across the world begins to explore the potential of centrally issued digital currency, it might be a good time to brush up on what they are, what they can do, and perhaps most importantly — how they can be misused by incapable or indifferent central institutions.
The crux of the matter is this. As decentralised currencies like Bitcoin have emerged to threaten the autonomy of centralised financial systems and potentially replace the questionable economic judgement displayed during economic crises, central banks are getting ahead of the game by co-opting the technology.
Why not combine the technological advantages of Bitcoin with the stability of the centralised fiat currency system?
While this sounds great in theory, and can have advantages in an ideal world with a benevolent entity handling it, the larger fear is that widespread adoption of CBDCs could cement economic power in these institutions — and further reduce the autonomy of the individual.
Down, down, down we go… ⏬
It’s not just the market cap of Chinese tech giants that’s going down, US GDP isn’t exactly flying high either. While on paper, the country’s GDP has recovered and gone back above pre-COVID levels, it’s far below what was expected with gargantuan trillion dollar stimulus checks. That’s a lot of fuel for very little acceleration.
Something is very wrong when the U.S. GDP is growing at 6.5% but salaries grow only at 3.5% with inflation at 4% annualized and the PCE price index at 6%, weekly jobless claims at 400k, and continuing claims at 3.3 million.
While interventions are welcome and necessary, this muted response to booster shots of incredible sizes is just another solemn reminder that printing money and hoping for the best doesn’t usually go very far without larger economic reforms playing support.
To provide a little more context as to why, here’s investment manager Michael Pento:
(By the way, if you thought people not going out and spending enough now isn’t good, wait a few years, when there’s likely not going to be enough people to begin with).
Bitcoin’s hanging in there 💪
It’s not just Chinese stocks, US GDP, and populations that are seeing a downward trend. Bitcoin’s had a rough few months too.
However, the overall optimism around the cryptocurrency is still going strong, as seemingly every new piece of information regarding the financial health of world economies (and their rush to push CBDCs) seems to only reinforce the pillars Bitcoin was built upon.
If you’re looking for an update on Bitcoin’s long term prospects, here’s an in-depth (but paywalled 🔒) discussion about the cryptocurrency that covers everything from its efficacy as a global monetary network to the concerns regarding its energy utilisation.
"Different meanings can be assigned to the same events.
Look for evidence of how the world is encouraging you, and you will find it.
Look for evidence of how the world is burdening you, and you will find it.
Choose an explanation that empowers you."
Stuff we loved this week 👍
We’re all about throwbacks this week. Building on some excellent interactions featuring Marc Andreessen that we’d shared in previous issues of Forward, here’s another gem where he talks about crypto and the art of getting funded in Silicon Valley
Remember this mind bender of an article by Balaji S on (we’re not kidding) how to start a new country? Well, it’s got a handy little video explainer now, and it’s gold. Check it out:
Okay, you’ll have to forgive us for a couple more paywalls, but insights from Noah Smith and Chamath Palihapitiya are usually good enough for people to charge money for. 🤷♀️
Chamath Palihapitiya on the power of playing infinite games [🔒]
Food for thought 💡
Remember the Metaverse? That magical world where the Internet and the real world meld and connection and commerce blend seamlessly between the two? Yeah, it gets us raised eyebrows when we tell our friends about it, but you know who else gets it? Mark Zuckerberg.
Time to start reading our previous shares about the Metaverse!
Balaji S has always seen the future from a different perspective than most, with some degree of success. We’d be remiss if we didn’t share this interaction featuring his thoughts on the future and the network state.
Have you ever thought about how all the weird, wonderful, and wacky themes we collate in this newsletter, on some level, boil down to our need as a species to accumulate wealth and make progress? Let that sink in for a bit, and as the realisation dawns, allow us to play out this issue with some ideas we could all do well to remember:
If you think this newsletter made your Sunday morning a little better, please spread the love and send it to your friends. We’ll see you again in two weeks.
Until next time,
Your friends at NEO
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