The conclusion kind of scares me, especially coming from Dalio.
> so they could very well impose prohibitions against capital movements to other assets (e.g., gold, Bitcoin, etc.) and other locations. These tax changes could be more shocking than expected.
Who truly believes this is a likely scenario? A number of folks I know are already considering fleeing the US but if this was to pass, that number would skyrocket and I can't imagine a good outcome in the next few decades from capital flight in the US.
Far fewer people than imagined even flee to different states within the US because of higher taxes. The notion that everyone's going to go live in the Caribbean and eschew their social lives and their kids' fancy schools seems unlikely.
This was the part that caught my attention as well, it would be super interesting to see it play in real-time.
For one, how would they even put capital movements controls on crypto? For example, I just have to remember my 12 word seed and I can hop on a plane to another country and my crypto comes with me.
The other part is, wouldn't those capital controls be the last nail in the coffin of "we lost complete control of the situation"?
If the USG (or Europe, or China) still have a strong military, or a lot of influence over the financial sector at that point, you may have a tough time finding a bank to convert your crypto into Fiat. At that point, you’d have to find a country that accepts Bitcoin directly as a payment method or whose financial system can shrug off regulations.
That might be harder to find than you think, or might require a significant haircut on the conversion.
If cryptocurrency exchanges don't exist in good public standing, the price of bitcoin will collapse. This is a risk that does not exist with precious metals.
The real problem with bitcoin is you cannot physically transfer it. I can sell you a USB drive with a wallet on it, but you shouldn't buy it because you can't know if I have a copy of that USB drive in my other pocket. The only way to transfer bitcoin for-real is to submit it to the network and to make sure it's confirmed.
My take is that the censorship-resistant qualities of bitcoin are highly overstated.
The problem is that if you can’t easily convert it, the OTC price is going to plummet.
Since the ledger is public, if the government knows which wallet is linked to you (easy if you’ve done KYC in order to use an exchange), they could also sanction any wallets that transact with your wallet, severely limiting who will be willing to do P2P/otc with you
The minute they try to impose those controls on crypto is the ultimate Streisand Effect moment that will confirm to everyone that they definitely need this asset. I suspect this is why they have avoided it so far.
> The minute they try to impose those controls on crypto is the ultimate Streisand Effect moment that will confirm to everyone that they definitely need this asset.
I'm not convinced. Your scenario relies on people having some deep conviction about the value and usefulness of cryptocurrencies. I think that this is true only for a very small vocal minority of users/buyers. Most people just want to make easy money with it - that's why I think heavy regulation/bans will simply crash the prices instead of leading to a Streisand effect.
I think they avoided it because they were asleep at the wheel when it started getting traction and now limiting it would make a lot of people angry. It's a mess of epic proportions. It's probably the best strategy for regulators to wait for some major collapse (like Tether being exposed as a scam) and use that to introduce counter measures. Meanwhile the negative sum arm race continues sucking more people in.
The Indian government is going to ban it entirely. I'm unconvinced that many Indian investors will want to hold on to an asset which can land them in jail.
in the world where you have heavy capital control, enough to warrant using crypto to escape, the fiat will be worthless to you (hence the capital control!), and thus, others will be willing to accept your crypto instead of fiat!
So, assuming the USG is serious about this, you're probably looking at China, Iran, Russia, Venezuela, or North Korea. Color me skeptical that the captains of industry are headed there.
Depends. Corpors might want to offload, but then again perhaps not, since it would still be valuable in countries that chose to not impose restrictions. Then there's the ability to avoid middle men (both authorities and bankers) while making trades and purchases abroad. For everyone else, it matters little, unless they really need to get on a plane, and fast. But then whatever assets you have to trade for that seat matters less anyway.
The fiat on/off-ramps are the choke points of the whole crypto world. Yes, you could use your BTC to buy Teslas and drugs, but that's it. You can't pay at the supermarket or on the web directly, it all goes through payment providers who are regulated.
Someone needs to cash it out in the end to buy raw materials or bulk purchase food. That's the idea of hyper-Bitcoinization that this step would go away, but I don't see any indication for that.
Regarding localbitcoins or other OTC in person deals I certainly wouldn't want to meet with a stranger and carry $1000 with me in cash to buy his Bitcoins. And localbitcoins was forced to implement KYC, so if Bitcoin gets outlawed or heavily taxed, the state will have a look into their customers.
Where would you go? The EU and Japan are already in a worse position than the US and if the US decides to commit to capital controls, they would probably follow. That only leaves China which already has capital controls.
>A lot of crypto-expats are going to carribean island nations.
Are they going to buy Lamborghinis in pesos? More seriously, yes, some people are content with living like a rich native in the global south but for anyone else who plans to participate in the global economy (and I assume they do, because capital controls would likely only affect high net worth individuals), they would need to convert to EUR/JPY/CNY/USD.
Yes but it happened then because the dollar was backed by gold, and the Fed needed more gold to back the new dollars they wanted to make, to bail out the economy. Now they can print as many dollars as they like.
Likewise. Hearing Michael Burry recently talk about hyperinflation as a possibility, albeit a small one, is also frightening.
I don't know if gold is under threat, but there's certainly historical precedent for it, as mentioned in the article.
For Bitcoin, India and China have both been taking small steps toward limiting or banning it. Western media and influential figures (Bill Gates) have been recently talking about how wasteful it is.
No matter your arguments on either topic, the fact remains that governments can limit their own citizenry, by threat of force, from transacting with any instrument.
Look at the rationale section. The Fed needed more gold so it could print more dollars. Since today's dollar isn't backed by gold or crypto, the same reasoning wouldn't apply.
In fact, if crypto were used more as money in the real economy, banning it would have the reverse effect, shrinking the amount of money in the economy.
I don't think they need to go as far as prohibit crypto, all they have to do is increase taxes for crypto since we already have to pay taxes on capital gains for crypto. If this tax rate increases, people will be less likely to use crypto.
I actually believe something far scarier. I think we're going to see a worldwide disintegration of governments and then sort of a feudal anarchy - basically the Syrian Civil War, but spread across the globe. People will stop taking the government seriously and just go do what they want, with a lot of local bullies and warlords springing up to take their place.
The financial picture Dalio paints is the first stage of this, but it merges with a lot of other trends to make something horrible. There's the ongoing migration crisis; conditions are becoming inhospitable in areas like Central America and the Middle East, which is driving migrants to developed nations like the U.S. and Europe and destabilizing those countries. There's the climate crisis, which is the root cause of the migration crisis. There's a trust crisis propagated by the Internet and Big Tech, where nobody knows what to believe anymore. There's a pending military technology shift where cheap autonomous weaponry fundamentally changes the power balance between large nation states and small insurgencies. And then there's a population that's just fed up, as evidenced by the Capitol Riots and lockdown protests (as well as plenty of Internet vitriol).
Unfortunately fleeing the U.S. won't do anything for this, because if the U.S. goes, the whole world will erupt in flames. Better to put down roots in a community whose values you agree with, ideally one in a well-defensible location with plenty of natural resources.
While interesting, I have a feeling that your prediction may be subject to recency and availability bias. If I picture myself looking from within the US, your scenario sure resonates. But looking from outside, I'm not convinced it does. From the other side of the planet, it looks like the US is having a moment but the other governments aren't sitting idle and letting entropy increase.
I'm also not sure that 50 years from now, the Capital Riot will be recorded as being a majorly significant event in US history. It'll probably be mentioned in history books but I'm doubtful it'll be referred to as a pivot point in US history.
Migration crisis: I feel there's been larger migration events in the past. Doubtful the climate crisis will actually be creating a massive scale migration crisis.
I do think climate change will change the dynamic in various areas.
I otherwise also agree on the paradigm shift in military technology.
In Bangladesh alone 150 million people are projected to be displaced by rising sea levels by 2050. Many South American countries are suffering from spiking rates of kidney failure as the climate warms, which is already a factor in the US border crisis as an increasing proportion of migrants suffer from kidney disease.
I think there will be displacement, but over many years/decades as opposed to a single large event. That's why I'm not strongly confident in a migration crisis. I don't say this with confidence, but it doesn't seem likely to be as bad as say, a World War forcing 150M refugees overnight.
I think there will be a few levels of displacement and migration waves from climate change.
Things like sea level rise, rising temperatures, and more frequent blizzards or cold snaps act over decades. That'll be a gradual shift in migration patterns, not a crisis.
But a lot of the second-order effects operate on much smaller timescales. Hurricanes can cause large dislocation on the timescale of a week: look at Rita & Katrina in 2005, which cut the population of New Orleans in half and gridlocked all the freeways out of Houston for days. Wildfires also can trigger large migrations within a matter of weeks. We've been lucky that most of the West Coast wildfires have been in relatively unpopulated areas, but if one were ever to jump highway 280 in the Bay Area or get into the Pasadena/Glendale/Burbank area by LA, we could have a mass evacuation crisis. Crop failures too: that's what's driving a lot of the Middle East migration. If it happened in the U.S. or China millions of people would starve.
There's also violence caused by resource constraints. We see that in Central America now, in the Middle East, and increasingly in the middle of U.S. cities.
I've been predicting something like this since about 2005, long before recent events. It just it felt like it was far off in the future, not something happening right now.
The other major factor is a demographic crisis: worldwide, we have a large bulge in the number of people who are just about hitting 30 in 2020. Historically, when a lot of people reach reproductive years and there aren't the resources needed to support all of them having families, violence and social instability tends to result. This has been predictable since all these kids were born in the 90s, but obviously I'd hoped it'd go differently and technology would find some way to alleviate resource limits. Now we're here and seeing all the discontent from peoples' lives not turning out quite how they envisioned as kids.
Ah, so you read what you want to hear into current events and seek confirmation bias. Your whole world-view comes off as a bit prepper / Great Replacement-crank.
It's the nature of negative black swan events that there's always a reason to believe they won't happen right up until they do. If you hold these beliefs over a long-period of time, based on long-term societal trends, "your whole world-view comes off as a bit prepper / Great Replacement-crank". If recent events bear you out, it's Availability / Recency bias. If the events actually come true, then we won't be discussing it on an Internet message board, we'll either be dead or spending our effort trying to survive, in a perverse form of Survivorship Bias.
Nevertheless, we know from history that these events do occur, and they occur much more frequently than those of us alive now believe (again a form of survivorship bias - folks that don't live in a time of peace tend not to survive). The 250-year stability of the United States - and the 75-year Pax Americana after WW2 - is a historical anomaly. The article gives a bunch of reasons why the 2020s will be different, financially, from the 1980-2020 period, and I gave a bunch of reasons why it'll be different sociopolitically. You can choose to believe them or not, but I (and Dalio) at least explained the dynamics that lead me to believe them.
> There's a pending military technology shift where cheap autonomous weaponry fundamentally changes the power balance between large nation states and small insurgencies.
It would seem to me that this shift towards remote weapons would favor the military, not insurgents in the event of civil strife.
Autonomous/remote weapons let you take the human out of the weapon system, which lets you drastically shrink the weapon system. We haven't really seen the full effect of this yet, because we haven't expanded along the dimensions of freedom this allows: cost, quantity, expendability, scalability, and taking the human out of the kill loop. So far our remote weapons look basically like our piloted weapons, just with a computer and a data uplink in the driver's seat. But imagine that you make your remote weapons 1/100th the size, 1/100,000th the cost, and build 100,000x more of them. That fundamentally changes the nature of warfare. The goal is to overwhelm the enemy's decision-making and manufacturing capabilities as much as it is to outmaneuver them.
Shrinking the weapon system usually results in physics limitations on range and speed - a 20-ton plane can carry enough fuel to go 2000 miles, but a 1 kg drone might have enough charge to go 2 miles. This favors the defender and prevents the use of these weapons for power-projection. Drone swarms are great for close air support, field defense, and urban warfare, but you can't do precision strikes across a continent (but you can defend against precision strikes, as long as your drones are accurate enough to intercept a missile). That fundamentally changes the balance of power toward smaller political entities.
I wonder what is actual realistic minimum size and mass for effective drone in warfare. We are still using essentially projectile weapons, be it bullets or missiles. These have minimum effective mass not to forget delivery system. Even theoretical energy weapons have to get the power from somewhere...
> I think we're going to see a worldwide disintegration of governments and then sort of a feudal anarchy - basically the Syrian Civil War, but spread across the globe.
Your perspective on this seems to be a bit U.S.-centric. No developed country in the world botched its national response to Covid-19 as badly as the United States did. In several countries — like Australia and New Zealand — public trust in government has grown as the public benefited greatly from its government’s world class results in handling the Covid pandemic.
Granted, it does seem that most people these days consider their own government to be at the very least incompetent. But I don’t get the sense countries like Australia have anywhere near the same level of anti-government resentment to contend with. It seems to me a good deal of the blame for the dysfunction of modern America falls on American culture.
> There's the climate crisis, which is the root cause of the migration crisis.
I’d think quality of life factors and economic opportunity would be the primary drivers for migration from the global south to North America and Western Europe. Am I misreading your take on this? It’s a bit of a leap to pin it all onto climate change.
I know the US press has been busy telling you that your country handled this uniquely terribly compared to everyone else, and this idea has spread to the rest of the planet just like all your other politics. Meanwhile in the real world, the country everyone was pointing to as the big European success story that proved everyone else had fucked it up not so long ago - the Czech Republic - is actually the one with a worse Covid death rate than pretty much everywhere else on the planet, and the other countries in the region aren't doing too great either. (Also, all along the comparisions used misleading tricks like comparing the number of detected Covid cases when the US had much more widespread testing for it than Europe.)
I’m curious, since you seem to have thought a lot about this - any suggestions for defensible locations with plenty of natural resources? I’m guessing suburbia generally doesn’t meet that definition.
When I looked into it the top locations were in the Pacific Northwest (extending down to the Lost Coast in California) or Northern New England. Ample rainfall, surrounded by mountains, lots of timber, sea routes to reestablish trade or for fishing, and potentially farmable.
Some runners-up included the Bay Area & Coastal California (easily defensible & fertile, but has overpopulation, water issues and limited timber), the Great Salt Lake valley (ditto), and the Colorado & Wyoming foothills (pretty dry, but a great mining/oil shale area). The worst areas were in the Southwest (which already has a migrant crisis and is going to get totally screwed by global warming) and the Great Lakes area (overpopulated relative to its natural carrying capacity).
Suburbia could be a decent place, if the population density is low enough and it's surrounded by arable land and resources. Livermore, for example, wouldn't be a bad place. But the rows upon rows of tract houses (say San Jose or LA) would become a miserable place without the rest of society to support it, as would the inner cities. I think that the ideal density would be a small self-contained city of say 50-80K people: small enough to maintain social cohesion, but large enough to support some division of labor and have enough of a workforce to support & defend the region.
Not the Great Salt Lake valley - too many people for the available food supply. That's not going to go well.
My own answer is Delta/Montrose, Colorado. It has water, good farmland, nearby mountains (timber) and coal fields. You could even do some hydro power from the river. It's somewhat defensible - an attacker would have to cross a fair amount of inhospitable terrain to get there, unless they came from the south, and the San Juans would not be that difficult to defend.
The one issue would be oil - there's oilfields around Aztec, New Mexico, but that's kind of a long way in a collapsed society.
Thanks for the comprehensive reply! I hope you’re wrong, but I can’t say that I haven’t considered a lot of the same things, and I had similar thoughts about PNW and New England being relatively good options. Hard to really look at this kind of scenario and come to any conclusions with enough confidence to act on them, though - so many unknowns and fundamentally different rules.
People are just going to set your house on fire unless you have a 24-hour patrol. A bit of a fantasy to imagine you can just escape the total collapse of society.
Oh well in that case New England can't feed itself so you're still kind of fucked. Kind of hard to parse this out though since all of these regions have suburbs.
New England can feed itself minus the cities. That's what they did for hundreds of years - New England was almost entirely farmland until the 20th century. A lot of folks still have small-scale subsistence farms or vegetable gardens in Vermont, New Hampshire, even central/western Massachusetts.
And in this collapse scenario the cities -- incidentally where a lot of wealth and power tend to be concentrated -- simply consent to starve to death? Or are you defending against them too?
The cities are absolutely going to invade the surrounding countryside. Mobs and gangs of hungry people banding together to take what they can from weaker neighbors has been a feature of nearly every instance of state failure.
As a city-dweller, your strategy for surviving this is to join one. As a wealthy suburb dweller, you better hope you have a private security advantage where you can kill the whole mob before it kills you. As a rural dweller, your strategy is to be far enough away, high enough up, and insignificant enough that it's not worth going after you. Gas will be in short supply after a collapse; it's not worth driving 100 miles to take food from a farm that you don't know exists. Most of the towns and small cities in the regions I mentioned are easily that far away from the nearest city.
It's pretty likely that the dominant political organization after a national collapse would be city-states. However, that doesn't mean that it's best for an individual to be within them. We might see 75% depopulation within cities, but people in rural areas can go on about their normal business, if they don't get conquered entirely by the local city. It's a choice between living in privilege in the aftermath of the collapse but having a good chance of not making it there, vs. a higher chance of survival but you'll be a vassal state to the local city.
I'm not sure that the life of a subsistence farmer is necessarily one of privilege, especially if we're imagining there's no gas and presumably the recurrent drought issues in MA aren't getting better. Seems like you might be better off getting in the pod.
You might want to define unfree markets because American lives with regards to some key metrics seemed to improve more notably when it's markets were comparatively less free in the post ww2 era and china is also doing quite well and manage to get trough the 2008 financial crisis unscathed with it's application of Keynesian economics compared to US/EU.
The United States is the only major power with a strong ideological belief in unrestricted capital flows. The EU and China have both implemented capital controls in the modern era, sometimes repeatedly. (U.K. currently stands out, too.) All it takes is a populist “the rich are fleeing with their capital” trope to take hold on the far left and/or the right, and the centre to crumble, for such policy to become politically palatable. At that point, there really isn’t anyone else defending free market capitalism.
Put another way, do you really think you couldn’t get a lot of people in e.g. San Francisco to sign onto a mandate that requires the rich to register outgoing capital flows?
> The United States is the only major power with a strong ideological belief in unrestricted capital flows.
Doesn't seem that way for citizens considering we still have to pay US taxes when living abroad (there are some tax agreements but still), have to pay an exit tax if we want to renounce our citizenship, and the US requires foreign banks to report US citizens assets to the US government.
unrestricted capital flow is not the same as untaxed earnings.
I don't like it, but the US is free to decide to want to tax their citizens even if the income is earned outside the borders - and they have the capability to enforce it.
>Put another way, do you really think you couldn’t get a lot of people in e.g. San Francisco to sign onto a mandate that requires the rich to register outgoing capital flows?
Your example is poor; there are 10s of millions of people in California who have been trying to get healthcare reform passed for nearly a decade now and the trend so far has been Obamacare being slowly unwound. It's unclear if the far left/right is anything more than a boogeyman at this point considering the glacier pace of the Senate in the last 20 years. The media would have you believe the democrats are well on their way full blown communism, but the reality is the party self-sabotaged their own $15 minimum wage proposal and managed to be less generous than Trump on stimulus checks.
If the Federal Reserve decided to implement capital controls, I doubt it would happen democratically. It's more likely that you would wake up one day and all the major banks would have limits on how much gold you could purchase in a year for "liability reasons". I'm sure a Senator or two would scream, but the next week there would be the next culture war story with Ted Cruz complaining about MTV.
> there are 10s of millions of people in California who have been trying to get healthcare reform passed
I was responding to "who...believes this is a likely scenario?" The argument isn't "this will happen." Just that it shouldn't be beyond the pale of reasonable debate. (Like universal healthcare.)
> If the Federal Reserve decided to implement capital controls, I doubt it would happen democratically
Capital controls are populist. They shift power away from the wealthy to those at the political levers. The Fed would almost certainly not do this; the Treasury could under emergency powers. The potential for popular support would give them cover to do so.
>Capital controls are populist. They shift power away from the wealthy to those at the political levers.
No? Capital controls in western history is hardly populist. When I think of populist economic movements, the Bretton Woods System doesn't come to mind. And it's clear China's capital control serve to keep power in the hands of the autocracy; not the other way around.
If the value of the dollar was spiraling to zero it's the Fed, and their clients, that would have the most to lose.
> The United States is the only major power with a strong ideological belief in unrestricted capital flows.
This belief in ideological attachment to policy sounds so silly to me. It can change and it can change quite quickly in fact. It's like saying the US has a strong ideological belief in democracy that guides all it's geopolitical moves abroad.
Embrace and extinguish would be American way of imposing restrictions on capital movement. Make something so superior to Bitcoin (a la FedCoin), and have it be the unquestionably superior choice. Bitcoin has a huge usability, "did I enter the right public address" problem. Point is, there's a lot of ways regulators could manufacture the behavior. A great deal of market behavior is already manufactured through the the Federal Funds rate.
> so they could very well impose prohibitions against capital movements to other assets (e.g., gold, Bitcoin, etc.) and other locations. These tax changes could be more shocking than expected.
Who truly believes this is a likely scenario? A number of folks I know are already considering fleeing the US but if this was to pass, that number would skyrocket and I can't imagine a good outcome in the next few decades from capital flight in the US.