This post covers some of the challenges affecting banks, crypto, and the future opportunities open to us all.
The pre-Covid world seems like a peaceful distant memory of a simpler time.
There's a lot to be concerned about today:
Commercial real estate (CRE) is facing a major crisis due to high interest rates and low occupancy rates, making it difficult for landlords to refinance. To combat long-term low occupancy issues that are set to continue, many cities' central business districts may need to rezone some commercial real estate into housing or mixed-use properties.
banks are dramatically tightening lending criteria and are under threat of another crisis this year. Up to 10% of CRE mortgages need to be refinanced this year.
if history is a guide, banks will stop lending to each other because each one wants to fortify it’s own balance sheet and not become the next bank to fail. This makes the entire banking system more fragile right now.
the future for retail banking looks bleak to me. Money is moving out of savings accounts into products that give them access to the yield from money market funds and within the next few years I think many people will get comfortable with digital wallets where they store their money and tokenized assets. There is going to be a lot of discussion about CBDCs vs crypto and traditional banks vs Defi services.
US senators who accepted millions in donations from the FTX fraudsters have been fuming with embarrassment and want to unleash fury on the crypto industry. The US government launched a secret “operation chokepoint 2.0” to de-bank crypto which likely triggered the recent banking crisis.
Bitcoin now has a new narrative as a hedge against banking system risks. All the uncertainty around the banking sector has Bitcoin up 70% this year. But this uptrend isn’t for all parts of crypto: people are currently nervous about keeping money in stable coins or on exchanges such as Binance.
population growth rates are crashing in many countries. Peak child has already been hit and a peak human population level is expected to be hit 60 years from now.
China is facing a collapse of their population statistics. China may have been overstating their population. There’s some evidence indicating they are at 1 billion people right now not the 1.4 billion claimed. Estimates range, but there is wide agreement that China’s aging population will reduce rapidly over the next half century. What will that mean for geopolitics in an era of robotics?
many people think the US dollar will lose its status as the denominator of global trade and that this will weaken the US. A weaker US dollar will help US onshoring efforts and create good union jobs: something President Biden would love to do. The reason the US dollar soared in 2022 was because the Fed rapidly raised interest rates and most nations’ debts and global trade is denominated in US dollars so the world needed more dollars than were available. The recent trades denominated in Chinese Yuan are minor attempts to hedge against further US dollar strength. The Yuan could never replace the US dollar because the CCP doesn’t want to give up capital controls and allow foreign banks to print Yuan themselves but that’s how the US dollar is used to settle global trade.
the post-WW2 American-led free trade-oriented world is transforming into a more complex environment, and there's no certainty about what comes next, especially if Ukraine doesn't regain its internationally recognized borders. A failure in Ukraine is likely to lead to more wars in more places.
both Russia and China are now starting to weaponize their populations right down to kindergarten. That’s terrifying.
AI experts want to slow AI research but funding for AI companies and public interest in using AI tools is on fire and no-one is going to stop. Enter Moloch.
young people are pessimistic and citizens are losing trust in authority. Populist groups are on the rise and most seem to have an authoritarian impulse whether they are right wing, left wing, anti-lockdown or conservationists. They all want to silence other viewpoints. We need to defend pluralism.
the world is struggling with how to respond to climate change without harming poorer people and poor nations to the point that they turn against these initiatives. I believe the seeds of ESG failure and resentment have already been sown and we will harvest a very bitter crop if a more optimistic option doesn’t take root.
Technology as a pathway to abundance:
During the Western Roman Empire, pottery was mass-produced and cheap enough to be an everyday item in any Roman town. However, this simple abundance disappeared in the Middle Ages, and the average household no long had the benefit of high-quality jars and other pottery.
Throughout history, technology has improved the lives of the average household whenever mass production of quality goods was achieved. Today, we ought to apply this approach to the production of a broad energy mix so that more power is available to more people at a lower cost. Governments should stimulate more energy capacity while increasing the stringent requirements for reporting and mitigating the total cost to the environment of each energy source.
The need to mitigate the effects of the humanity's impact on climate and bio-diversity:
We now face the spectre of planetary limits on the resources and bio-diversity. This raises fears of scarcity and sets up the conditions for us to be influenced by rhetoric that demands we accept bad outcomes. Rather than accepting rhetoric, we need to approach building solutions from first principles.
The first principles-based approach breaks down complex problems into their most basic elements to get at a core truth. It encourages creativity and helps reverse-engineer complex problems.
Assumptions About the Energy Transition:
We need to make a major energy transition as rapidly as is practical. We cannot reduce energy production throughout the transition without risking civil or global unrest or causing massive inequity.
Tesla has put out a "Master Plan" that is their plan for massively scaling up their production. They have calculated from first principles how to meet the energy needs of the world with the resources available on our planet. Their plan claims to be achievable within a relatively short window of time and with the available resources.
This isn’t Tesla suggesting they will fix the planet’s energy needs by themselves. Based on their plans the world will need the equivalent of 10 organizations growing like Tesla and implementing the approach as it is laid out in the master plan.
“a sustainable energy economy is technically feasible and requires less investment and less material extraction than continuing today’s unsustainable energy economy. While many prior studies have come to a similar conclusion, this study seeks to push the thinking forward related to material intensity, manufacturing capacity, and manufacturing investment required for a transition across all energy sectors worldwide.“
Tesla’s document covers the assumptions they’ve made to get to those numbers so critics have lots of opportunity to check and refute aspects of their assumptions.
I think this sort of first principles big picture thinking with assumptions laid out for criticism is optimistic in the best way possible.
The alternative to this open book optimism is that we say nothing when rhetoricians in politics and social justice shut down the opportunity for solutions and instead legislate scarcity. That will do little but “beggar thy neighbour” where the wealthy will outbid the poor and take the resources, energy, and optionality.
As someone who is passionate about creating the fundamental conditions for opportunity for all, I hope Tesla’s master plan is a success and causes more people to focus on genuine solutions. I want my kids living in a world where we create energy abundance and bio-diversity that everyone can enjoy.