What's up, everybody? My name is Demetri Kofinas, and you're listening to Hidden Forces, a podcast that inspires investors, entrepreneurs, and everyday citizens to challenge consensus narratives and learn how to think critically about the systems of power shaping our world.
My guest in this episode of Hidden Forces is Nicolas Colin, a former French official and the co-founder of a European startup accelerator whose work sits at the intersection of technology, markets, geopolitics, and global finance.
Nicolas and I spent the first hour breaking down his late-cycle investment theory and the framework behind it. We draw on Carlota Perez's model of technological revolutions and techno-economic paradigms, explore the role of speculative manias and market concentration, and examine why Nicolas thinks AI is less a brand new technological revolution than an intensification of a computing and network paradigm that has been unfolding for the last 50 years. We also compare the current moment to the 1970s as a historical analog and discuss why he believes financial systems are often the last piece to be rebuilt after a major paradigm shift.
In the second hour, we explore what this late-cycle thesis means for investors, the public, and the geostrategic competition between the United States and China. We talk about how tokenization and programmable money could reshape the plumbing of the global financial system and how today's Trump shock might be the opening move in a broader financial reset. We also discuss what financial fragmentation between two competing spheres, one led by China and one led by the US, may look like in practice. Why programmable grid infrastructure and a new scale of electrification may be the primary candidates for the next technological revolution. And what all of this means for public debt servicing, inflation, financial oppression, and wealth redistribution as proximity services replace the factory floor as the central battleground over which a new social contract will be formed.
If you want access to all of this conversation, go to hidden forces.io/subscribe and join our premium feed, which you can listen to on your mobile device using your favorite podcast app just like you're listening to this episode right now. If you want to join in on the conversation and become a member of the Hidden Forces Genius community, which includes Q&A calls with guests, discounted access to third-party research and analysis, and in-person events like our intimate dinners and weekend retreats, you can also do that on our subscriber page. And if you still have questions, feel free to send an email to info@hiddenforces.io, and I or someone from our team will get right back to you.
And with that, please enjoy this incredibly interesting and valuable conversation with my guest, Nicolas Colin.
Nicolas Colin, welcome to Hidden Forces.

Thank you. Very glad to be here.

It's exciting to have you on, Nicolas. So you were introduced to me by a mutual acquaintance who initially sent me a paper you published in the summer of 2025 titled Late Cycle Investment Theory: The Foundation for the Coming Decade. And that sent me down a rabbit hole of reading some of your additional work, which I quickly realized has so much in common with the subjects that we've covered, the perspectives that we've taken. You cite many of the guests that have been on this podcast. So I'm very excited to talk to you today.
Before we do, just real quick, give me your background. I don't know much about you. What's your story? How did you get into writing about investment questions and related matters?

So I was born in France, grew up in France, studied engineering in the 1990s. Never really practiced engineering because when I graduated from my engineering school, it was right after the dotcom crash, and so engineering became unattractive suddenly. So I switched to a different career, studied political science, public administration, joined the French government, where I worked for a few years as a senior civil servant at the treasury.
And then I left because I got interested in tech again after a 10-year hiatus and had a brief entrepreneurial experience to try to found a startup in France, failed miserably like many startup founders. And then I co-founded a pan-European startup accelerator, which grew from zero in 2013 to three offices in Europe, London, Paris, Berlin, a portfolio of about a hundred companies. And we stopped investing in 2021. So today I am managing that portfolio, which still exists and is still growing. I consult with investment firms, mostly on research, investment theses, markets, et cetera. And I write several newsletters, actually on mostly macro and geopolitics.

Fantastic. So you actually have a few different Substacks. You have three from what I've seen, but your main one is driftsignal.com. Is that right?

Yes, that's the main one. That's my personal newsletter where I cover the economy and how I see things. The second most important, I would say, is the one I'm writing with my colleague, Marieke Flament, who used to work for Circle, is a specialist in stablecoins and everything crypto. And we have launched this newsletter called Currency of Power about the emergence of a new monetary order.

So it looks like you started publishing almost nine years ago to the day, actually, which is roughly as long as I've been hosting this podcast. What motivated you to begin writing for public consumption all the way back in 2017?

Well, I guess I've always been into writing. Most of my work, including in government, was writing reports, memos, et cetera. Many, many good things have happened to me because of my writing, people reading my stuff, and reaching out. And that's a good networking tool, I find. And it's also a good way to clarify your own ideas. When you try and understand a situation or a topic, the best way to really go deep is to try and write about it or teach it if you are lucky enough to have students, which I don't have at the moment, but I used to teach quite a lot.
So I launched my newsletter in 2017. The idea was to, well, I was interested in this idea of writing regularly for a growing audience. That is people who receive a newsletter in their mailbox like every week or every month or whatever, but I had been writing forever. I wrote several books before that in French, and again, reports and stuff like that. So writing is my natural way of working and building a network, et cetera.

Have you always been doing this, or have you gone through phases where you write more and then go through phases where maybe you spend more time researching and thinking without actually putting pen to paper?

Yeah. So you write to ask that question because I find that writing and researching are, to a certain extent, mutually exclusive. When you write, you don't have that much time to read or have interactions with people. But no, mostly I prefer writing. Again, it's the best way for me to absorb knowledge and to get interested in new things. There were periods where I wrote quite a lot, like during COVID. We were all stuck at home with the lockdown, et cetera. So I increased the pace of sending editions of my newsletter at the time.
And then I stopped for a few years between '21 and '23 because I was busy with restructuring my firm and taking care of the portfolio, et cetera. And I resumed mostly essentially earlier this year because I found myself with more time on my hands and realized so many things had changed over the course of three years, like launch of ChatGPT in 2022, Russia's invasion of Ukraine, also 2022, reelection of Trump, 2024. The world is so different from what it was like three years ago. I had to catch up, and the best way to catch up, understanding what the world for me, is to write.

Who are you writing to? Who is your ideal reader?

Well, my theory is that you mostly write for yourself, but it turns out when you write for yourself, you also address an audience that is people that are interested in what you think or see the world the same way as you. And so I've grown this audience of people that are at the confluence of finance, strategy, geopolitics, policy. And what they like about my writing, and which tends to provide a guideline for me in terms of deciding what to write about, is precisely that mixing all those topics together and have a broad perspective on things. It's not narrow. I'm not an equity analyst. I'm not a policy researcher. I can do all of those things together, which, by the way, is a very French tradition. We have this tradition of being a generalist that's rewarded.

And it sounds thinker.

Yes.

I'm working on my French accent since we turned on the microphones earlier. So what were the things that you were interested in writing about in 2017, and how have your interests evolved or your focus become better defined in the last decade?

So 2017 was the peak of our business as a startup accelerator. And we were right in the middle of a very interesting decade, which I would sum up as the decade of software hitting the world to echo Marc Andreessen's worlds. And so the challenges we were confronted as an investor backing early-stage tech startups in Europe was that everyone knew what was coming, how the economy needed to be transformed, how new entrants were toppling incumbents and disrupting entire markets.
But there was a lot of resistance because it's Europe, people are not like in awe in front of tech companies. The markets are small, it's difficult to build businesses across borders in Europe. There are many different lines of fragmentation, like regulations, language, culture, many things. So it's still difficult, but it was difficult to grow tech companies in Europe. And so a lot of what I did as the policy guy in the startup world was advocating for startups and making the case that we should help startups instead of resisting them.
And so most of my time was spent addressing audiences in the corporate world, in the policymaking world, the media, think tanks, everyone that was not either a founder or venture capitalist. Those were addressed by colleagues of mine at the firm, but I was in charge. I was kind of like the foreign minister for the startup world. And so when I started writing this newsletter, it was really about that, like why startups are important. What can we do in Europe to help them grow instead of curbing their growth? And making sure we weren't missing that opportunity of embracing a new paradigm and growing our economy with it.

So the way that I view the world, Nicolas, is more often than not informed by a series of unanswered questions that continue to resurface over and over again in my head. One of those questions that's relevant to today's discussion is, how do I protect myself, my friends, my family from a changing economic and political order so that we don't become the collateral damage of government policies resulting from some inexorable set of structural, economic, and social trends?
Another would be, how do I help arm the public with the information needed to steer public policy in a direction that will prove more beneficial for everyone, and that could help us avert large-scale catastrophes of our own making that will imperil all of us? What would you say are the corresponding questions that you find yourself asking over and over again that motivate your concerns and the things that you've been writing about in recent years?

So I would say my main concern, I didn't use those words back in the days, but it's economic development. I think as a European, I've been enjoying growing up and living in a country that was in a continent that is a very advanced economy. We have very high standards of living, we have safety, we have strong institutions, we have democracy, everything you can wish for. And for some reasons, which we can discuss, for about 20 years, it stopped working.
And so the main question I've been interested in working with startups or working from a policy perspective has been what explains the slowdown in European development? What explains the spectacular acceleration in Chinese development? What explains the difficulties the US is going through at the moment? What are the promises if you look at the Middle East, or Africa, or South America, or Southeast Asia, where will those different countries or regions be 20 years from now? And what can we do to reverse the trends if we can spot them? That's really what I'm interested in.
And I think the business world has a critical contribution to make to winning or losing that game, but also the policymaking world. And that's where my worldview of embracing all of that, finance, policy, business altogether makes real sense. So I'm kind of obsessed with that. And I'm in Europe, I've been living in different European countries, so I know the differences. But I have vested interests in Europe catching up and not slowing too much in the current transition.

So if I'm hearing you right, your focus is much more on how to strengthen our societies and make our economies work in the public interest and less so in terms of how you understand the current environment in order to increase the market capitalization of your portfolio?

Well, I think both are correlated. I'm a big believer in, you would call them hidden forces, but key trends or long-term trends.

And you can certainly do both. I'm not suggesting you can't. I mean, again, these are the two biggest concerns for me as well. I mean, those two both. How do I respond to this on a personal level, and then also what can I do to help inform people so that we can shift the vector at the earliest stage possible in order to have the biggest long-term effect? And also so that we don't end up way down the road having missed key opportunities where our economies are now stagnating for the long term, and there's little we can do to reverse the trend.

Exactly.

I think that's the concern, right, that we're facing today? So as I said, what brought us together initially was a paper that you published over the summer, the paper titled Late Cycle Investment Theory, in which you argued that today's markets show signs that we've entered the maturity phase of the computing and networks revolution. And the paper is your attempt to help people navigate this phase and help them spot opportunities that consensus thinking might be overlooking. Let's start first with a summation of the argument that you make in that paper, as well as what your inspiration for this late-cycle investments thesis has been, and when you began to see confirming evidence of it in the world.

So as I mentioned earlier, when I resumed writing earlier this year, one of the big things that had changed in the meantime, when my writing was on hold, was the rise of artificial intelligence, the launch of ChatGPT, and suddenly every tech company trying to become an AI company, et cetera. The way I see what I call the age of computing and networks, that's our age, is that every year we add more of those, more computing, more networks, and we combine them in ever more efficient ways. And sometimes it has a dramatic effect, like a transformative effect on certain industries or society as a whole, et cetera.
And so when I see new things happening in tech, what I see usually is the continuity. It's like, "Oh, it's more computing and more networks," which makes my view very different from that of many venture capitalists who tend to see change in terms of waves, like you have open source and then cloud computing and then mobile and then social and then crypto and metaverse and now AI. And so what they tend to see is, "Oh, AI, it's a new wave. So the world is completely different, and we need to restart from zero in terms of understanding what's going on."
So what I see when I see AI is just the continuity of all of that. And what I see is something else that I think is very important is the fact that AI has been going so fast in terms of market adoption, that it should tell you if it's going so fast, it's because people are understanding right away, and it's not radical innovation for that precise reason. If everyone understands it in an instant, it's not radical. It's more like the continuity, the deepening, the acceleration of things that were already happening.
And you could see that because when ChatGPT launched, everyone was impressed. You could test it and realize, "Oh wow, that's absolutely amazing. It can write an entire article based on a prompt." But then, three months later, maybe, there were already similar models launched by all the big tech companies. Meta had its own thing, Google had its own thing. Everyone was catching up so fast, like, okay, that's not radical innovation. That's more like, okay, someone opened the door, and everyone's rushing in to try and take positions.
And so what I was looking for was a way to articulate this idea of everything that we're seeing, even though it looks like it's radically new, is in fact the continuity of everything that has been going on for decades, like more computing, more networks. And because I like to think in systems, that's another very French trait, I try to build this castle of a theory that puts all of that into perspective, and that explains, okay, we're in the same cycle, we're at the late stage of this cycle. What are the consequences for you as an investor, a founder, a financier, a corporate executive, or a policy maker? And that's the birth of this concept of late-cycle investment theory.

So let's take a step back now and try to build a solid foundation for listeners who are following along, because Carlota Perez's framework on technological revolutions and techno-economic paradigms has been a very important inspiration for your thinking. Walk me through her framework, and to the extent that differs from how you view things, please elaborate. But give us more detail into the mental model that you're using to understand the innovation cycle.
And I know also from having read some of your additional work that Bill Janeway has also been an inspiration. His book, Doing Capitalism in the Innovation Economy, was also a really influential book for me when I read it as a younger man, and he's been on the podcast as well. And in that sense, feel free to pepper in other inspiration. Just help us really build out, flesh out the mental model that you use to understand the world and the innovation cycle.

Sure. So, historically, I think I discovered Carlota through Bill's book. I don't really remember how I discovered Bill's book, Doing Capitalism in the Innovation Economy. I think it was in a TechCrunch article about Bill giving a talk at Andreessen Horowitz back in 2013 or something like that.

I met him through Robert Johnson at INET. So people that don't know the Institute for New Economic Thinking.

Yes. He's a founding member. Yeah.

Right. They did some really important work post 2008. I assume that they were founded after 2008; I don't remember. But that was the period where critical thinkers really had an opportunity to say, "Okay, here's what didn't work. Let's do the hard work of figuring out why it didn't work and how do we need to evolve our mental models in order to address the challenges that we're facing going forward?"

Yeah. So Bill's book was very compelling for that reason, in that he was explaining the critical role of venture capital in funding innovation and, in turn, the critical role of innovation in fueling economic growth. And so I don't remember exactly, I probably sent him an email, and by coincidence, he was in Paris a few days after that. So I probably was based in London at the time, but I was in Paris often. So we had lunch and became friends, and he kind of became my mentor. He's the one I turn to when I want advice or discuss ideas related to venture capital and the economy in general.
But in his book, he mentions Carlota's work, and I connected with Carlota, I think a bit later, after watching an old video of hers where she was interviewed by Fred Wilson, a prominent venture capitalist, Union Square Ventures, at WebExpo, an O'Reilly conference, in 2011. So you can find that video on YouTube. It's a great interview because they really go in depth into work, how model or framework helps understand the economy, and innovation and technology in general.
And so when I watched that video, I was blown away. This is so clear and so systemic, and I like the very systematic manner in which she explained the different stages of a technological revolution, et cetera. And so I bought the book, Technological Revolutions and Financial Capital, read it, was blown away. And I think I contacted her by introduction of Bill, and then started to see her from time to time because she lives in Sussex. And so I would take the train in London and meet her for lunch or dinner, and we would discuss a bit and exchange ideas, et cetera.
So I would say I really absorbed her work and read a lot of what she wrote in addition to the book itself. And it really became my mental model to explain what's going on because at the time, I was doing a lot of work on institutions and social policy, et cetera. The push I was trying to make was how to convince European policymakers that tech can be good and is not necessarily bad. And one of my argument is that tech contributes to creating value, but then on top of that, we need to build institutions so that that value is distributed more equally and contributes to shared prosperity at the society level.
And the best way to explain that is to go back in history and explain how they did it the previous time. So when automobiles were invented, it triggered the previous technological revolution, which led to what Carlota calls the age of oil, automobiles, and mass production. And at first it was a mess. You could even say that it was so hard on society, it created such inequalities and such tension, especially in the relationship between employers and workers, that it fueled the rise of fascism during both World Wars.
And it's only after World War II that Western governments decided to do something about it. Okay, we've seen how far it goes if we let technology do its thing to society without safeguards and institutions to make sure that the value it creates is redistributed to everyone. So they basically set up the wealth estate, social insurance regimes, et cetera, and it opened that golden age of 30 years of uninterrupted growth across the Western world.
And so when I started explaining that to people in Europe, especially policymakers, like, "Look, this is what they did the previous time. This is what we need to do this time." The age of computing and networks will be an age of shared prosperity if we put in place the right institutions. And at the time, I saw the power of going back into the past and revisiting history and using historical precedence. That's how you really convince people that technology is important and should be supported as opposed to curbed.

I have some clarifying questions. First of all, how many historical cycles does Carlota draw upon? So each of these cycles has four stages or four waves. We have the recent one, the computing and networking revolution. We have the Industrial Revolution. Are those the two main ones? Is there a previous one that she looks at as well?

She has five technological revolutions or great surges of development in her model. The first is the Industrial Revolution. It's basically the invention of labor productivity. You combine humans and machines, and it creates that thing that didn't exist before that is productivity. Then you have the second revolution, which is the age of steam and railways. So you deploy railways, and it completely changes the geography of our economy. Then you have the revolution of electricity, steel, and heavy engineering. So that's the end of the 19th century. Then the revolution of oil, automobiles, and mass production, that's essentially the history of the 20th century. And then you have computing and networks. And the birthdate of that is the invention of the microprocessor in 1971 at Intel.

And there's overlap between these two phases.

Yeah, yes, because when you're in the maturity phase of the finishing revolution of the current revolution or great surge, you can already spot the signs of the inception of the next one. Obviously, if you're a very good investor, you can spot the signs really well. There are many false starts, like at the time, if you ask people, what's the next technological revolution? A lot of people will say it's AI. Others will have other ideas. I think it's a bit early, but in 10 years or 20 years, we'll revisit this period, and we'll see the signs of whatever happens.

So as I said, each of these cycles has phases. The eruption phase is the initial phase where there's an intense amount of funding of innovation and new technologies. Then there's a frenzy phase, which is characterized by increased speculation and financialization that leads to a temporary decoupling between financial capital and productive capital. Then there's a phase of growing inequality and political unrest, which actually feels a lot more like the phase that we're in now, though there are also signs that we're in a maturity phase, which is what you think that we are in. So my first question is help clarify for me what stage we are in and why, given that we do see some signs of this stage-
... why, given that we do see some signs of this stage of there being political dislocations, why that isn't a better fit for where we are today in this cycle?

There are many signs, and my essay, Late Cycle Investment Theory, is precisely an attempt at going through the list of all the signs that make me think we are in the maturity phase of computing and networks. I'd say the most important one is the fact that the dominant players have emerged and are clearly identified. Typically, in this cycle, the stage at which you see the winners emerge and secure their dominant position is the synergy phase. It's because some companies use the technology of the day better than others, and use it as leverage to take dominant positions in the market. Then, during the subsequent maturity phase, they enjoy their dominant position and make a lot of money.
You could say that the decade of software hitting the world is the decade during which all those big tech companies have emerged and reached a dominant positions, and now they're really enjoying the immense power, including their influence over policymaking, which we're seeing in the U. S. with the unprecedented relationship between the tech sector and the world of policymaking with the Trump administration, et cetera. You can see it from another angle, which is that it's so clear that those are the winners that everyone wants to invest, to participate in the big feast, wants to invest in them. This is why the stock market is so concentrated, which by the way, happened the last time as well. At the end of the 1960s and early 1970s, there was something known as the Nifty 50. Do you know that one?

Sure.

Those were all the blue-chip industrial companies that were considered safe havens for investors. Everyone wanted to invest in them, and there was inflation of prices for the Nifty 50, companies like GE, and IBM, and many others, that were household names and that were considered safe bets for investors. Today, we have exactly that, except we don't have 50 of them. We have seven of them, as you know, the Magnificent Seven. Everyone wants to invest in them because it's so obvious they've won the race of the synergy phase and have secured dominant positions, which they'll probably enjoy for the rest of the maturity phase.

As you're speaking, I'm reminded of some other guests that have been on the show, one of whom you mentioned earlier, Tim O'Reilly, who is a great follow. I recommend people go back to listen to that episode to complement what they're hearing from today, as well as an episode with Howard Marx, where we briefly discussed the Nifty 60 and that investment period in the late '60s. Also, Sebastian Mallaby, who wrote a book on the origins of the venture capital industry, which also complements a lot of Bill Janeway's work on the innovation cycle. Just sticking with this thread of what characterizes an economy that's in this maturity phase of the prevailing technological paradigm, you have brought up the 1970s both in this conversation and also your work as a tight analog for what we're living through today. What happened in the 1970s that's relevant for today's discussion?

Yeah. I'd say two additional things. One thing that happened was the concentration of the stock market, which ultimately prompted investors to seek returns elsewhere, because if you're all piling up in the same stocks, in the end, no one makes money. Another thing that happened was the reset of the financial system. It started in a way with something known as the Nixon Shock in 1971, when the Nixon administration decided to disconnect the dollar from gold. Ray Dalio has this great video, which you can see on his YouTube channel. He was a young Wall Street guy at the time, watched Nixon announce the Nixon Shock on television, and went to work the next morning expecting a complete collapse of the market. What he says in the video is the opposite happened, because people were investing and buying stocks, and all the stock prices went up. That was because the gold standard, or the Bretton Woods version of the gold standard, was in fact a constraint on the economy, and the fact that Nixon put an end to it freed capital to flow more easily towards various assets, so that's one thing.
The reason why we need a reset of the financial system in the maturity phase, or stage, is the following, according to me. It's the fact that the financial system is the last thing to transform in a technological revolution. That is, for the previous stages, technologists and investors in technology have to make do with the financial system inherited from the previous paradigm. Most of the financing in the computing and network era has been done in the financial system designed in the 1970s, that is, the stock market, the bond market, derivatives, hedge funds, payments, currencies, et cetera. The reason it has to break it's because at some point the new paradigm is so different, is such a mismatch with the old financial system, that you have to get rid of the old financial system and rebuild it from the ground up, and that can only be done if something collapses. The previous time, it was they put an end to the Bretton Woods system, which made room for radical transformation of financial markets from May Day on the New York Stock Exchange to the London Big Bang in 1986.
Today, I think, well, one hypothesis would be that the equivalent of the Nixon Shock for the computing and network era would be the Trump Shock of 2025, where they've really made an effort in dismantling a few things and thus creating room for reinventing financial markets entirely from top to bottom. It won't happen in a day, but at least we have a clear ground here to start reflecting on what needs to be done for financial markets to really serve this economy of computing and networks, which is radically different from the previous economy of automobiles and mass production.

I'd like to delve into that more. In the second arrow, we discuss implications for investors, but let's go back to the gold standard here because I think this is important for people to understand, because I don't fully get it, by the way. When I read it in your paper, and you talked about how gold, the gold standard, was an example of how technological maturity breaks institutions designed for earlier paradigms, I didn't understand what it was about the computing and network revolution that made gold, or the Bretton Woods system of fixed exchange rates, no longer viable. What was it about that system that worked for the previous era, and then explain to me exactly why it didn't work for the next one, and what needed to change and why.

What they dismantled in the 1970s was a financial system shaped right after World War II, at a time when the financial implications of the economy of automobiles and mass production was not fully understood. What they tried to do was to rebuild the financial system that everyone was familiar with, that is, the old gold standard system, pre-World War I, but with a tweak, which was that instead of all currencies being convertible in gold, only the dollar would be convertible in gold, and then all the other currencies convertible in dollars.

Wasn't that largely philosophical, not actually a reflection of what they thought an ideal system would be for a particular technological paradigm?

Yes. It's because it's a lack of imagination. When you're invited right after World War II to rebuild the financial system, you can only go as far as what you know and what historical precedents tell you, so most of them tried to rebuild the system that had delivered so much value, supposedly, decades earlier. The reason it didn't work was that when you peg a system to gold, you are constrained by the quantity of gold available. You can mine and extract more gold from the earth, but not that much. It goes very slowly. At some point, if the economy is so productive that you create a lot of value and you create currency to account for that value, because a thriving economy means a lot of credit to entrepreneurs who invest in machines and hire people and build new activities, at some point there's a disconnect between the quantity of gold and the quantity of money you need.

The amount of credit and capital available to make the investments that are commercially viable that would be otherwise commercially viable isn't there, because you're on a limited supply.

Exactly. America's problem that prompted Nixon to implement the Nixon Shock was that the economy was growing so fast and had reached such a scale that the global economy, I mean, they didn't have enough gold to support that, to support that growth.

We were already seeing indications through the emergence of the Eurodollar market that something wasn't functioning in the Bretton Woods system. The economies were demanding more capital and credit in order to finance these opportunities. Is that the right framing here?

Yes, that's the right framing, plus the fact that the U.S. was not really playing it fair. Like Martin Wolf explained on the Odd Lots podcast, that while the U.S. had spent so much money like funding the Vietnam War, and they should have devaluated the dollar because the dollar wasn't worth what it was officially worth, but they didn't want to because it would be humiliating for the U.S. to have to devaluate the currency. That also contributed to breaking the system.

Also, the social welfare programs that LBJ instituted in the 1960s.

Yes, in power.

Just one more question before you continue, though. We were under a strict gold standard in the 19th century, and that was a period of massive capital investment. Why would the same principle not have held then?

Well, it was a period of massive capital investment, but as Karl Polanyi explained in The Great Transformation, it was also what led to the rise of fascism in a way, because World War I broke the gold standard. After World War I, they tried to reinstate it, and it created so much rigidity in the economy that, just as a new paradigm was taking shape, the paradigm of oil, automobiles, and mass production, that it broke. It basically destroyed many societies, including Germany, Italy, et cetera, and the whole of Europe, basically.
The gold standard in general imposes rigidity, which is not good for an economy that is thriving on technological progress and is going into many directions, especially at the global level. I think it's more of an intuition here, but it's that the reason why we had to reinvent the financial system in the 1970s was because the economy had grown so large and so fast, and technological progress was so spectacular that we needed much more flexibility, much deeper capital markets. Plus, there was the start of the Nixon Shock also made it possible to enter a new phase of globalization, and so international trade, et cetera. That really called for reinventing financial markets, because you can't fund an economy that's so global and so dynamic with old capital markets.
I think it was done over the course of 15 years, between 1971 and, again, the London Big Bang, but at the end of the 1980s, you had a financial system that was completely new, completely different from what it was in the 1960s. It basically provided the paradigm of the time with 30 more years of healthy life. Until the Great Financial Crisis, we basically grew the economy off the back of one financialization and two globalizations, and it worked well. That's because we finally had a financial system designed for making the most of the mature paradigm that was the age of oil, automobiles, and mass production.
I would argue today we're at exactly the same stage with computing and networks. We are trying to make it work with a financial system inherited from the past, from essentially the '80s, but it doesn't work, for many reasons. The world is completely different. First of all, the technologies of the day are completely different. They have created a much more service- oriented, much more globalized economy. There are a lot of flows of services, goods, and money going across borders, plus there's a key difference in today's world compared to back in the days, is the size of China and the weight of China in the world economy. The fact that China has been using a lot of computing and networks to propel their manufacturing industry and have become so powerful in terms of exporting manufactured goods, they have passed the record level of one trillion trade surplus this year.
That's also in part because thanks to computing and networks that they use in the factories to make them more efficient, more productive, but also computing and networks that sustains international trade and makes it easier to trade, to finance, to buy, to ship. The economy is on steroids in many respects, and the old financial system has difficulties keeping up, not only in terms of the plumbing but also in terms of the balance of the whole system. The trade imbalances, in a way, are a key signal that something needs to be redesigned here.

Nicolas, I'm going to move us to the second hour, where I wanted to devote that time to the implications of what we've discussed in this first hour, the implications to investors, the implications to the financial system, to programmability and tokenization, decentralized finance, to the geopolitical competition between the U.S. and China, and how that also relates to AI in the embedding of AI in manufacturing versus its application in the service sector. Then also, debt and the social contract, how debt factors in. I'm particularly talking about public debt and public obligations and the social contract, because I think we're also in a phase now where we're seeing a lot of social and civil strife, and that plays into what sorts of political solutions come out of this. I also want to mention a few books that came to mind. They're all from the same author. Actually, the reason it came to mind is ... are you familiar with Kevin Phillips, by any chance? He wrote, famously, The Emerging Republican Majority back in the early 1970s.

Yes. I have that book, but I think it's the only one I have. I only know him as the author of that book.

I had a chance to interview him back when I had my TV show years ago. He had written a book called 1775: A Good Year for Revolution, which is not the book I was going to recommend, but it's also an awesome book. It's essentially about what was going on in the Americas before the onset of the American Revolution, so super important. There's a really great chapter there on the hyperinflation that happened to the Continental, but he had two books. The first was American Theocracy, which had three sections, one of which was about the deregulation of the financial industry. Then he wrote a follow-up book to that titled Bad Money, where it was just devoted entirely to this wave of deregulation, which most people don't realize actually started under Carter. It didn't start under Reagan.

Yes, absolutely. Yeah.

Yeah. Nicolas, I've already given our listeners an idea of what we're going to talk about in the second hour. Remember, everyone, if you're subscribed to the audio file or Supernerd tier, to connect your premium feed to your favorite podcast application, so the episodes are downloaded automatically to your phone whenever we publish. If you haven't or you need help doing it, please email my team at info@hiddenforces.io, and we can walk you through it, or even jump on a call to help you directly. Now onto the second hour of my conversation with Nicolas Colin.
Nicolas, welcome back.

Thank you.

As I said, there are four main implications. Of course, the implications to the financial system bleed into investment opportunities, as does the stuff on China, global supply chain, geopolitics. I mean, I've also seen that Russell Napier is one of your inspirations. Russell's been on the show, and he has nailed this better than anyone I've followed in the last many years. When I say this, I mean how to think about the new paradigm and what the right questions are that you should be asking as an investor today. Then, if you're asking the questions for the older paradigm, you could get caught flatfooted, and then debt and social contract, et cetera. Let's actually just start with the financial implications, because we already were discussing this.
Decentralized finance. Actually, I don't want to spend any time really rehashing what has happened in crypto, because in some ways investing in crypto today or thinking about the application of what traditionally was thought of as crypto is also in a way dispensing with ghosts of a previous investment speculative frenzy, which was really the period between, I would say, especially like maybe 2015 through 2020 or 2021. We of course had DeFi Summer in the summer of 2020, and that was the first real emergence of DeFi and decentralized finance as this potential new paradigm.
It's taken some time for us to get the kind of clarity needed on what applications are actually going to be emergent and offer and create value. Regulations have some role to play there as well, but please define for me what the opportunity is today, both for investors seeking to take advantage of these opportunities and how programmable money, or transactions that exist on a public blockchain or on a public distributed ledger that have the ability to be programmable, self-executing, conditional, et cetera, how this actually can be a fundamental game changer and can address the incongruities between the old financial architecture and the new paradigm.

Okay. It's a very good question and it's not easy to give a short answer to that, but in short, the fact that we have more and more computing and networks, including AI, including AI agents, means that the number of counterparties in the economy trading with each other and exchanging with financial flows going from one to another is growing exponentially, which makes it very difficult for the old financial system or for the existing financial system to keep up, because the existing financial system is many different ledgers that you need to reconcile all the time, which creates frictions, delays, issues, money that gets lost, and very frustrating user experiences.
The solution to making it possible for the money to flow at the scale required with the number of counterparties that are participating in this economy is to try and concentrate the rules and the action in the asset itself, whether it's a company share, it's a bond, or it's a dollar, or it's a euro. Hence, the idea of tokenization. Tokenization makes it possible to ... well, the token embeds most of the information that you need to determine where it's coming from, where it's going, in exchange for what, et cetera, et cetera.
We're not there yet. Again, the previous financial reset, we had to wait like 15 years before it was fully functional, so I would expect the same time span will be required for the new financial system based on tokenization to exist. The idea is that, if the economy is not companies trading with companies, but AI agents trading with AI agents at a very micro level, you need a financial system that is able to absorb all this information and to orchestrate all those financial flows in real time with as little friction as possible. This is where decentralized stuff, crypto technology, whatever you call it, can play a role.

You've also said that the evidence points towards currency power in the 21st century coming not from controlling central banks alone, but from setting the rules of digital money, and that in promoting dollar-backed stablecoins ... which is I think the thing that the media has seized upon the most in this case, what we're talking about here is much broader than just stablecoins ... but in promoting dollar-backed stablecoins, whether deliberately or not, you've argued that the U.S. may be constructing the next phase of its monetary influence, one that doesn't rely on treaties or military alliances but on code and network adoption. What do you mean by, quote, setting the rules of digital money? Why does this matter, and what is the analog perhaps to the 1970s Bretton Woods II system that emerged for dollar dominance?

Yeah. Marieke and I have been writing about that in Currency of Power, my other newsletter. The parallel we find the most helpful is the one with petrodollars, which is the fact that oil is always paid in dollars, essentially. It used to be that oil was produced in the U.S., and there was something called the Texas Railroad Commission that was the central node in pricing oil worldwide. Then, early in the 1970s, the oil reserves outside of the U.S. were nationalized. That is, Arab countries, especially, but also Venezuela, asserted control of their national oil reserves, and that completely broke the value chains and the best practices in terms of buying oil, selling oil, shipping oil, et cetera. Everything had to be reinvented from the ground up.

Importantly, it gave these countries pricing power that they didn't have before, for people that aren't familiar with the history.

One thing that the U.S. was terrified about was what if those people start trading oil and don't pay in dollars? That means they won't need dollars to buy oil, as oil is a critical commodity. Everyone needs oil. Every national economy needs lots of oil, refined oil, to fuel the economy. If you want as a nation to buy oil, what's the currency you use to buy it? The U.S. really wanted the oil to be priced and paid in dollars because it would guarantee constant and growing demand for dollars, which would contribute to cementing the role of the dollar as the global reserve currency and make it easier for the U.S. to borrow at a cheap rate.

Also, supplement the loss of the gold standard.

Yes, exactly.

It would still be commodity-based money.

Yes. That was the key aspect following the Nixon Shock is that: if the dollar is not pegged to gold anymore, why would people want dollars? We need people to use dollars. What can we invent as an incentive for people to continue using dollars? One of the things they did was negotiate with Saudi Arabia that all the oil produced and exported by Saudi Arabia would be sold in dollars. That was the birth of the petrodollar market.

Yeah. I'm somewhat familiar with this history. I mean, I learned about it many years ago, and there's some law associated with it. In the years since, I've somewhat revised my interpretation of this history, which is that I question how much this was a gambit on the part of Nixon and Kissinger to sturdy the dollar in the face of countries that were otherwise uninterested in holding it, versus really just cementing what was already a convenient relationship that everyone was invested in. I mean, where would the Saudis or the Gulf States have put their money anyway? There wasn't a euro at this time. Where would they invest? They still would've needed to hold dollars. How much bargaining power did the oil producers have versus the U.S. in whatever arrangement, quote, petrodollar informal arrangement, actually came to be?

Yeah. My understanding of that particular episode was that mostly the U.S. was providing security to Saudi Arabia in exchange for ... in the context of Saudi Arabia having just nationalized the oil reserves ... in exchange for certain things that were helpful or useful for the U.S., one of them being, "Please keep selling your oil in dollars, because we need the entire world to continue using dollars." If such a critical community as oil is traded in dollars all over the world, and we expect that the global economy will need more oil going forward, that means people will need dollars all around the world to buy their oil, whether from Saudi Arabia or any other country. What matters here is the network effect. It's not the fact that we want Saudi Arabia to hold dollars. What we want is that everyone that wants to buy oil needs dollars.

Sure, but people were already using dollars. There already were network effects of the dollar. It seems to me that ... and this might be a small point on which to try and provide clarity ... but I think that in the way this story is often told, it is that this was a emergency, and there have been other emergencies that people will claim, for example, the invasion of Iraq being an emergency, that Saddam Hussein was on the verge of selling oil and euros and this is going to undermine the dollar. I think when I view the history, I think it's much more about two sides who are already deeply interconnected and dependent on each other coming to a new formalized agreement that leaves both sides feeling like they're getting a fair deal, but it's not the way that it's popular to describe, which is that really this was the Gulf States about to dump the dollar and the U.S. had to come in full bore and give Saudi all sorts of security guarantees, otherwise yadda, yadda, yadda. I think that understates the embedded network effects of the dollar and the propensity and desire for commercial entities and actors and governments outside the United States to use it, and importantly, also to ...
... and actors and governments outside the United States to use it, and importantly, also to hold it. So the part of the question that you already answered is the, what's the 1970s analog to setting the rules of digital money? What does that actually mean in practice for this system in terms of a regulatory approach? Listeners are somewhat familiar with some of the STABLE Act the CLARITY Act. They also are familiar because we've done some episodes on the Digital Belt and Road Initiative on the part of China, which is their response to this. Let's just focus on the Western US-led attempt to institute this rules-based approach to decentralized digital dollar issuance. What does this look like in practice? What are the conversations? What do we need to understand about the roadmap here?

So I should mention that my understanding of this oil episode, Saudi Arabia, et cetera, in the 1970s is because when you hear American officials today, when you listen to them explain the rationale for boosting data denominated stablecoins, they explain that they want as many people using dollars all around the world. And the way to do it is to make it possible for them to use dollars in the form of stablecoins. So that was made very clear a few weeks ago by Stephen Miran, who used to be an advisor to Donald Trump. Now he's a member of the Federal Reserve Board. And he wrote an article or gave a talk, I don't know, but you can read it anyway, explaining exactly that. We need people to continue using the dollars. It's a condition for the US to be able to fund its national debt. We need to have the ability to continue borrowing at a low rate.
And for that, we need as many people in the world using dollars. And he made it clear, he revealed the playbook of propelling stable coins because that's an incentive for people, especially in emerging markets, to use dollar because they're afraid of using their own currency, which is always on the verge of collapse or threatened by inflation or hyperinflation, et cetera. And so when the argument is made as clear as that, we want to invite the entire world to trade in dollars because we need them to. That's the only way for the US economy to be sustainable. Then you can revisit what happened in the 1970s with oil and realize maybe they didn't voice it like that, or maybe it was part of a more mundane arrangement between two countries, but it certainly played a role. There were certainly people at the Treasury or at the Fed that really paid attention to that, like the volume of dollars in circulation and what a good idea it would be for people to buy oil in dollars because oil will continue to flow, whatever happens.

Right. And we had dealt with two major oil shocks as well throughout the 1970s, and getting the oil price in dollars would reduce the volatility of the price of oil when priced in dollars for Americans.

So sorry, but we need to go back to your question then, which is that what does the new system looks like? What I expect is... So if you revisit the history of the previous reset in financial markets, that is between 1971 and 1986, first, there's a shock. So we have the equivalent this year, which is, I call it the Trump shock. I think it's fair to call it that.

Are we talking about the April... The shock to markets that happened after Liberation Day?

Yes, a combination of several things, but it's first, I would say it's three things. One is the trade war launched in April. Another is the push for stablecoins, the GENIUS Act, essentially. And the third is Trump trying to assert control of the Fed with all the pressures on Jerome Powell and all the intrigues around that.

So, the undermining of Fed independence?

Yes, exactly. So the three things together constitute a shock that really reshapes the financial system. Plus, the dollar is sliding that has been weakening for a month. So we see that something's happening here. So you need a shock. Then you need some regulatory tweaks, like what happened in 1975 on the New York Stock Exchange. It's known as it's Mayday. It's when they ended fixed brokerage commissions and essentially unleashed the stock market as we know it today. Then you need a whole generation of entrepreneurs who invent the plumbing of the new financial markets. A great example of that is Michael Bloomberg. So the Bloomberg terminal, I think, was invented sometime at the end of the 1970s, started to be used by traders who loved the instant messaging feature, et cetera, and turned into an essential infrastructure for financial market. Everyone that works in finance has a Bloomberg terminal.
That's how you get connected to all the other participants in the market. And it made Bloomberg a fortune. He became one of the wealthiest Americans because he invented that. So you need to look for those entrepreneurs who are inventing those new solutions that will together constitute the planning and the infrastructure for the new financial markets. And then what you need is some time to go through trials and errors, and trials and errors to quote Bill Janeway. And at some point, you can finally spot the best practices. So this is what should be done. This is what shouldn't be done. And at this point, which is a few years from now, there will be one financial center in the world that says, okay, I understand the whole picture. I will create the whole regulatory setting to try and have a shot at becoming the central node in that new financial system.
And the previous time, it was London that won that bet. The London Big Bang in 1986, that's how I interpret it. It's that they analyzed everything that worked, everything that was needed, and they really wanted to turn London into the second financial center in the world after New York, because they needed that lifeline. Otherwise, the British economy would have completely collapsed. They didn't have manufacturing anymore. They needed something to take over, and they really wanted to become the financial center for the rest of the world. And they did it with a radical regulatory reform that was the Big Bang that upgraded the entire London hub to make the most of that new financial system that had been built through trials and errors and errors and errors year after year. And so I think we have the shock, as I mentioned, we've had the regulatory tweaks like GENIUS Act and a few other things.
We already have many entrepreneurs who spot the opportunity of building the new system and participating in that effort and making a fortune, Michael Bloombergs, if you will. And then in a few years, you have one financial center that will try and become the center of this new system. Maybe it'll be London again, maybe it'd be New York, and they will defend their position. Maybe it'd be Hong Kong or Dubai or Abu Dhabi. We don't really know, but they're all vying for that spot at the moment.

Does that also mean that you expect the financial system to break into two when we look at the globe, that there's going to be the Chinese sphere and the Western sphere, and that the real battleground is over who gets to dominate the developed world or who gets to provide those financial services, and assets, and functionality to the developed world?

Well, I think it's fair to assume that that will happen. Yes. So what won't happen is the decoupling of China and the West, because China is so present in our Western economic life, and well, much more so than the West is present in China, but we can't get rid of China. China is here to stay, and we'll continue buying goods from them and trading with them. So it won't be two separate spheres that completely ignore each other. But the previous time, we had New York as the main financial center, and we had London covering the rest of the world, London being the central node in an offshore network that spanned across the old British Empire, like from the Cayman Islands to Hong Kong to other financial centers.
And so I would expect China and Hong Kong specifically to emerge as the center of a China-centered financial system that's somewhat compatible with the Western financial system, which will be centered in, probably in New York. And maybe in between, there'll be intermediate systems like Middle East, probably the Gulf countries have a shot at building something that will act as a bridge between the Chinese system and the Western system.

How compatible can these systems be? Because it seems that the United States, a consensus has emerged in the US and it's also something that's been articulated, not maybe very well, but nonetheless articulated somewhat in the new national security document, which is that there is effectively a Cold War emerging here between the United States and China. There's a geostrategic competition. And it seems to me that we're headed to is a world where the United States makes conditional arrangements with foreign countries.
And one of those conditions will be you have to use the dollar. You have to use our dollar back stablecoins or whatever this new emergent financial system is. And you can't use the Chinese digital renminbi whenever that becomes, whenever China opens its capital account, or whatever that things that need to happen in order to make that viable. So how exactly... Because you seem to just be describing a world that's much more compatible than the one that I envision. So help me bridge that divide.

So that divide, I think, will be bridged by a new class of intermediaries. If the world fragments, you still need to trade. Trade is like water. It flows anyway. And so even at the height of the Cold War, the US was buying lots of stuff from the Soviet Union, like wheat, as part of detente. They were still trading with each other, but the Soviet Union was extremely marginal in the global economy. China is not marginal; it's central. Everyone buys from China. And China is now the most advanced nation in many industries and many sectors, and we can't afford to ignore them. We have a lot to learn from them. So, China, you can't put China at the margin and decide to ignore it. You can't. There's been this atmosphere in the US of Cold War 2.0 or whatever you called it. I observed that it's already going down in terms of narrative. Trump has made peace essentially with Xi Jinping.

Is that your interpretation? Because it's not my interpretation. I mean, what is your interpretation of the section of the national security document where he doubles down on the Taiwan Relations Act, where he doubles down on language about American preeminence globally, on denying China a foothold in commercial relationships in Latin America and in other parts of the developed world? I don't see it that way at all. I think that he says one thing maybe for public consumption, but what's actually in the document sounds rather hawkish.

So I read the document, and I read lots of commentaries on the document. That's not really my interpretation. What I see is compared to the narrative that Trump had on the campaign trail and during his first term in 2017, and starting from 2017, he was extremely aggressive towards China; he's much less so now, and has seemingly decided, as you mentioned, to try and split the world in each their own backyard in a way.

Yeah. But I also didn't get that impression from reading the document. I understand that... It's interesting because that's the narrative. The narrative is that this is a new balance of power world where America's encouraging every major regional power to dominate their own region, give Asia to China, give Europe, Eastern Europe, or whatever section the Russians dominate, and then the US gets Latin America. But the document doesn't read that way. The document reads, "America's going to lock down the Western hemisphere, and then also we're going to deny China, Asia." They literally say that in the document. So that doesn't sound like to me like spheres of influence. It sounds like a new blueprint for American Empire.

Agreed. Maybe it's because... I mean, Europe and most Europeans were shocked by the developments on Europe and the US wanting to intervene in national politics, et cetera. I would say... So the fact is that when I look at the US and China, I see two countries that really need each other. That's because China needs to export, so they need the entire world to buy their stuff, but starting with the Americans. And the US is a country that needs to borrow year after year, more money each year. And so none of them can afford to ignore the rest of the world. And when you can't ignore the rest of the world, it's difficult to ignore the other big player, like for the US, it would be China. For China, it would be the US. So that's how I see the situation. And I think in terms of financial markets, going back to our original discussion, so it means that each will try to expand their network, and there will be a lot of maneuvering to make sure that they go as far as possible, and then make the network as dense as possible.
You alluded to the fact that the US really counts on its allies to keep trading in dollars and Trump is explicitly pressuring allies to make them invest in the US to commit to investing like hundreds of billions of dollars every year in the US, et cetera, which reveals that, well, they really need that money to continue to fueling the US economy, which is indebted to the rest of the world.

Well, there's a lot of inconsistencies. I think you've highlighted this in your work as well. There's a lot of inconsistencies between, on the one hand, doubling down on many of the aspects of American empire, including dollar hegemony or dollar dominance. And at the same time, speaking or advocating for rebalancing global trade, and then expecting that the rest of the world, your trading partners, who you're going to eat into their surplus, are going to simultaneously take the money that they have and they're going to pour it into your country to help you re-industrialize. I mean, somewhere at some point, reality is going to have to come in and be clarifying, and we haven't quite gotten there yet.

Well, I think reality will... The precedent I see is the British Empire. So Britain used to be an industrial superpower was the cradle of the industrial revolution. And during most of the 19th century, it was the most industrialized country on earth. Then, at some point, and Carlota writes about this in her book, at some point, they decided that they were making more money, like investing in the empire and trading with the rest of the world, than making stuff at home. So they missed a step when came the shift from the second technological revolution, that of railways, to the third, that of steel. And this is why they ceased to be the leaders, and the leaders became like the US and Germany, who were most advanced in the steel industry. And at this point, Britain only had the empire, and then when they lost the empire after World War II, they reinvented themselves as a financial superpower, like London as the financial hub. So they bought one century of additional life, even after losing their edge in manufacturing. I think the same is happening to the US.

Has happened, in fact, in the post 1980s period.

Yes. They need an empire, which explains why Trump is making his bold statements on Canada, Greenland, Ukraine; he wants minerals in Ukraine and all these crazy ideas. They don't sound that crazy to me if you realize the parallel with the British Empire. And when they don't have an empire anymore, they'll still have their financial superpower. The fact that everyone wants to invest in the US, or trade in the US, or use the US as a financial infrastructure. But for that, you need people to want to invest in dollars, which explains the push for using dollars and specifically the push for stablecoins.

Yes. And to invest in the United States and to feel confident in the American rule of law and as a attractive destination for capital, something which I think we are actively undermining, but let's even just put that on hold for a second. It seems to me that there's a larger challenge here too, which is winning over the developed world. And it seems that China at least has a clear pitch that they're making to these countries, which is that we can provide you, among other things, with the technologies of the future that you need to grow your economies. And we can do so competently and reliably and importantly, we're not going to meddle in your domestic politics. Well, that's not true. They will meddle in their domestic politics, but we won't do it in a manner that hinges on ideologies or high-minded speeches about democracy or blah, blah, blah, blah, blah. We won't lecture you. You'll get the telecommunications equipment, you'll get the low-priced EVs, you'll get the solar panels, et cetera, and it won't come with the lecture. And that's very appealing to a lot of developed economies that have much more practical concerns and in many cases don't have ideal democratic systems. I mean, who does? I mean, we don't. So the United States isn't in a position to upgrade Africa's telecommunications equipment. The Chinese are. And so it seems to me that that is a big boot in the machine of extending dollar dominance, which is that China has the ability to go out to these countries and do long-term deals and be seen as a stable partner and the US doesn't. How do you feel that factors into, which is to say that the loss of America's manufacturing capabilities and the long timeline required to get that back actually ends up undermining the ability of the US financial system to become the defacto global leader.

Well, so remember what I said about the fact that we need a new financial system because the number of participants in the economy is growing exponentially with AI agents and physical transactions, et cetera. So the fact that China's value proposition to developing countries is essentially will deploy many networks, like telecommunication, is one network, but we can also deploy an energy grid, like installing solar panels and connecting them to the grid, et cetera. And then on top of that, we'll deploy a third network, which is the payment network. They have Alipay or WeChat and all the financial solutions that they've been honing on their own domestic market for years, and that are really top of the game. That's the whole package that they're-

That's a package-

... offering-

That's right. That's the way to think of it. It's like a development package.

Yes. And each of these layers triggers powerful network effects that connect that particular country to the Chinese network. But the reason why China is doing that is that they want to trade with as many countries as possible. They're seeing the writing on the wall that it will become more and more difficult to trade with the US and potentially with Europe as well. Therefore, they need to invest in new trading partners like countries that will eventually develop their economy and become wealthy enough that they can buy lots of stuff from China.

And they have to be willing to risk capital in order to do that.

There's something we didn't discuss, which is, what's the next technological revolution? So I don't know to full disclosure, but I have a hunch. And my hunch comes from a week that I spent in New York in May earlier this year, where I met Arthur Kroeber, who's the head of research at Gavekal and respected China analyst. So we spend one hour together by introduction of a friend, a common friend, and we talked about China, and France, and Europe, and startups, and stuff. And at the end of the meeting, Arthur stands up and says, "Oh, I have to leave. I have another meeting, but there's something we haven't discussed, which I think is the most important thing happening in the world at the moment. And that's the fact that China just passed France in terms of share of electricity in final energy consumption."
That is final energy consumption, means you either consume oil, or gas, or electricity essentially. And France used to be number one among the large countries because we have this nuclear infrastructure that we make our own electricity, 75% of it. And so we are more independent than other countries from an energy perspective. But to make the most of that ability to produce our own electricity, the government in the 1970s had to invest a lot in forcing everyone to electrify everything that could be electrified at the time. And therefore, we are very high in terms of electricity and final energy consumption. And China just passed France, that is now more electrified than what used to be, the most electrified country in the developed world. And Arthur told me that he said it will change everything because once you have an electricity grid like China's that's decentralized, that's programmable because they've deployed that software layer on top to balance the grid at all time.
If it's decentralized with lots of renewable, you know that it's very difficult to balance the grid in such conditions, therefore you need a lot of software to help balance the grid. And this will become the platform for applications we don't know anything about yet, but it will change everything. The entire economy will be rewired on top of this infrastructure that isn't like any other. And so he told me that, and two days before that, I had read an article by a European venture capitalist called, Every startup in energy today is a startup that builds the programmable grid. And it was a short article, but that was essentially saying the same, like when the grid becomes programmable, it will change everything. And then two days later or the same week, there was a big read article in the FT about China becoming the first electro-state. That's the title of the article.
And so I came back to Europe after that week in New York, where I had read this article by ABC, heard from Arthur about China building things that will change everything, and this FT article. And so I told myself, that's it. That's probably the next technological revolution. The next technological revolution will be triggered by deployment of this programmable grid at a very large scale, starting with China, but then Africa and other developing countries in which China is ready to invest because they want to plug them to their network and to equip them with an energy system that completely bypasses not only Western technology, but also local constraints like Africa has a lot of sun. So solar power is obviously the solution for them. They don't necessarily have the money or the capacity to build nuclear power plant. Doesn't matter if they can deploy solar panels; they have energy enough to start industrializing and developing the economy.

So I actually had a conversation with Journalist Wolfgang Munchau some time ago. I don't know, it was like six months ago or something. He had written in this book Kaput, which was about the structural challenges facing the German economy. And something that I found very interesting that I did not know until I had read that book was that the German economy, for a variety of reasons, had resisted embracing digital technology and that they were stuck in some sense in an analog era. And one of the concerns that arises from comments like those that you've made and that I've read, also about really the advantages of electrification and what it means for manufacturing and fine-tuning manufacturing, is that the United States, by doubling down on oil and gas and the internal combustion engine, ends up stuck in that previous energy era.
And because of how long it takes to make those investments, that essentially, China, by having embraced this early and having made those capital investments early, will have already effectively won in the race for that new technological future before we even recognize it, that maybe that it's already happened. How do you think about that from like the perspective of policymaker in the US who's saying, "We want to try and solve this. America can get ahead of it. We can do it. We're the entrepreneurial nation." Should policymakers be concerned that, actually, the race has already been lost?

I'd say yes, and every technological revolution is a reshuffling of the cards. That is, you can be the leader in one paradigm, and you can stumble and lose the spot in the next one. Because another country has been faster better than you at building the new technology of the day. And so we saw that in the past, because the first two technological revolutions in Carlota's model were dominated by Britain. And then, as I mentioned, Britain stumbled and had to leave the top spot to two other up-and-coming nations, industrial nations that were Germany and the US.
And then the US had a good run because after dominating the steel and heavy engineering paradigm, they went on to dominate the paradigm of oil, automobiles, and mass production, and then again, the paradigm of computing and networks. So if you're American at the moment, you can understand why you would think that you'll continue dominating whatever happens because they've been at it for so long. But the fact is, as I mentioned, again, America at the moment very much resembles 19th-century Britain in that they have it so good on the financial side, they have such tremendous geopolitical power. They can force other countries to basically do what they want, and that makes you complacent because innovating with technology is hard. Arms-twisting other countries when you're Donald Trump is relatively easy. We saw that this year. And making money by investing in the stock market is also easy compared to building a new factory and learning to master process knowledge that makes manufacturing effective and efficient.
So I would expect the US to be in danger at the moment of losing the top spot. And that's the thing. It's exactly like in the disruption theory of Clayton Christensen. Usually, you lose by doing exactly what needs to be done. The US is right to exploit their geopolitical advantage and their financial advantage. It's the rational thing to do. Why would they lose money trying to master new skills in making stuff when they can make so much money with their financial system? So it's rational. And so, having said that, if I'm right and the next technological revolution is all about electrification, then by insisting on doubling down on oil and gas and combustion engine, the US clearly is missing that turn and will pay for it dearly in the coming years by seeing China escape and ending up more advanced.
I wouldn't say it's a problem for other nations, like we in Europe, like France has never been the leader in any technological revolution, but we are good followers. We can analyze what the leader is doing, avoid the mistakes, embrace the best practices, and grow the economy in a much more straightforward way. Or like South Korea, did or Japan, or other countries. So a lot of countries will be able to learn from China and follow into their step.
But the US, before doing that, will have to lick their wounds and their hurt feelings, and they'll be probably too proud to acknowledge that there are things they can learn from the Chinese. And this is why you can't stay the leader forever, because if you're the leader, you accumulate such tremendous financial energy or political power that it becomes too easy to make money, and you don't need to invest in the hard stuff of the day. And the hard stuff of the day, I think, is not building new models for artificial intelligence, it's electrifying the entire economy.

So I don't know if the right analogy is the European continent. I mean, if we have to actually focus specifically on Britain losing the mantle of global empire to the United States, and what that meant for the standard of living and lifestyles of Brits. But overall in Europe, you could do a lot worse than living in Europe in the 1980s or '90s or the 2000s. So it's not like the end of the world if that's what the situation ends up looking like, but Europe was also within the American orbit, and their systems of government were more compatible. What do you think that this means? If we do end up living in a century where China dominates the key technologies of the future, what are the additional implications of that, do you think, for the organizational structure of political economies and the national security of countries on the European continent and the United States?

I think it's difficult to learn from China. I mean, if we acknowledge that China is the leader, we need to learn from them and follow into their steps. But it's difficult to learn from China for various reasons. One is that the culture and the language are so difficult to master for us Westerners. We don't have a long tradition of everyone spending time in China and getting familiar with the Chinese culture and Chinese society. Plus, there's the pride factor, the fact that we consider ourselves more advanced, even if we're Europe, so we're not as advanced as the US, but I mean, we used to rule the world. So learning from the Chinese basically hurts our pride, hurts our feelings, and it explains why it's so difficult.
And the last thing I would say is that Europe is in a tough spot because it's lagging behind the US clearly, has been lagging, especially since the great financial crisis, and we know the statistics about that, but it's not doing that bad, as you mentioned. Life is good in Europe and we don't have that sense of urgency and we don't have that drive to learn from others to catch up on them and to learn new things.
There's this whole conversation raging at the moment in Europe. Should we invite the Chinese to invest in Europe? Should we form joint ventures with them? Should we use those joint ventures to learn from them and do our own thing? Just as they learn from Western companies. And I mean, you had Patrick McGee on the podcast, and he wrote in Apple in China how Apple educated an entire nation and made it possible for the Chinese manufacturing sector to race ahead.
So we could do the same with the Chinese, invite them, take their money, have them invest in Europe, and learn from them. But many people I discussed this idea with these days tell us, like, well, if they know China, they say, "Well, we will never have the same drive to learn from them as they had the drive to learn from us." It was official policy in China in the 1990s. It was called the Go Out policy. Jiang Zemin, the Chinese paramount leader at the time, had this official policy that basically ordered every Chinese to go out of China, learn new things, go study in foreign universities, go work for foreign businesses, and come back with everything that you've learned.
We don't have such traditions in Europe, and there isn't such a tradition in the US either. So I think it makes it difficult for Europe to learn from China. That said, another thing that I've been discussing a lot is that the US has a problem with China because they see them as a match. It's a very large country, very powerful, very advanced with geopolitical implications, Thucydides trap, et cetera. In Europe, we don't have that problem with China. We don't see ourselves as in the same category because we are a collection of small countries that don't speak the same language, et cetera. So in a way, we don't have that problem in terms of working with China and building a relationship with China. Plus, there are also cultural factors.
It's a bit of a cliche, but I often explain that we in France have a lot in common with the Chinese, specifically three things. First, great respect for the government. When there's a problem, we expect the government to solve it, and it's expected; it doesn't create adverse reactions like in the US. Second, we have the same system for training civil servants, like the engineering elite in China is selected and trained exactly as we do in France. And for the record, we borrowed it from the Chinese. That's what we call them, Mandarin, Mandarins. That's the whole elite selection system inherited from the Chinese empire that Napoleon transplanted in France when it was emperor. And the third thing, it's more anecdotal, but we like to do business of a good food and good wine, which is very un-American, but very Chinese and very French.
So those are tiny details, but the cultural affinities between certain European countries and China can be built upon and used as diplomatic levers to get closer to them, to learn from them, and to see them as the leader that they are in the up-and-coming paradigm and try to follow them in terms of economic development.

I think just to close off this part of the discussion, then open one more short thread because we're kind of running up against our time limit here. I think maybe one of the core problems that the United States faces and that informs its ineptitude in public policy measures that could compliment the effort to win this race for the technologies of the future is that Americans don't really know what they're fighting for anymore. They had a sense of who they were, they had a sense of what they stood for as the beacon of democracy and freedom, as the shining city on the hill, but a series of both foreign policy blunders and also betrayals on the part of the elites, the Iraq war, the redistribution of wealth post 2008 and the shoring up of the financial system, the lack of accountability. Actually, really with the thread that runs through all of this is the lack of accountability and the gaslighting, the perpetual gaslighting.
It's undermined people's sense of what the American project is about, which then undermines any collective efforts to try and right the ship. And I think that's the challenge that we continue to face. And I've seen no evidence that we're prepared to address that. Instead, we just seem to keep doubling down on the sources of our discontent and disunion. And so this is actually a great place to bring the conversation to an end by asking you about how you think the social contract in this country will be resolved. And it's a way to pull in also this thing I teased about, which is the debt. I mean, so we have a large public debt in the United States, not as bad as France, not as bad as Japan, but it's not great. We have extreme levels of wealth and income distribution. The dynamics of return on capital and compounding interest only are going to make that worse if it's not addressed based on the trends already in place.
So we're seeing maybe a hint of the direction that things will go with the election of a socialist mayoral candidate in New York City. I have long felt that what we saw in 2016, the Republican Party, was going to happen in the Democratic Party. It didn't happen in 2020; 2028 is the next opportunity, or 2024 rather, it didn't happen in 2020 or 2024. 2028 is the next opportunity to see that happen. I do think that at some point we're going to see a hard left turn, not just in the Democratic Party, but I think we're going to see those kinds of redistributive policies show up on both sides of the political spectrum. I'm curious how you see this playing out. What a solution to the inequities and to the debt ends up looking like in one of these late-cycle paradigms?

Yes. So, two aspects to your question. So the first is the national debt. It's unprecedented. The levels at the moment are unprecedented. So no one really knows how we solve that in peacetime. In wartime, it's different because you can then rebuild and inflate the data away. But in peacetime, so I tend to agree with analysts and commentators who say that eventually in every heavily indebted Western country, there'll be a mix of inflation, financial repression, and productivity, essentially. Ideally, there's something to really do is cutting costs and cutting expenses in a state's budget because you have too many constituencies that will get angry if you cease to pay this or that. Basically, it doesn't work, especially it doesn't work if everyone does it at the same time. If every country tried to balance the budget at the same time, it creates austerity all over the place, and it brings the entire economy down. That's what we saw in the early 2010s.
So I would expect that mix to happen with different levels across the Western world, but inflation, it won't be articulated as official policy, but governments will have to become much more lenient because it will be the only way to reduce the debt burden. So it's a good way to borrow money because it's a good time to borrow money. It was a good time to borrow money in the 1970s because you were basically paid in the end to invest in your apartment or your business. Financial repression, that means that investors and Russell and APA has discussed that a lot, including on your podcast, the fact that more and more governments will force save us to invest in super assets, domestic assets, as opposed to having the ability to pick and choose at a global level.
And productivity, and here a lot of people are expecting a lot from AI. I think AI will contribute to higher productivity, like lean production contributed to reviving industrial production from the 1970s onward, like the Toyota system discovered in Japan, and that became the new standard across the 1980s and 1990s. Plus, we'll have a new wave of globalization, plus we'll have a new financial system or financialization. So we'll have like 20, 30 years of growth fueled not by technology, but trade and finance, whilst we wait for the new paradigm to emerge on the electrification side. So that's how we'll solve the debt problem, I assume.
But in terms of the social contract, that's the other aspect of your question. So I think in every paradigm, there's a clash between businesses and the businesses and the workers, and the social contract typically provides the institution that align their interests to a certain extent and makes it possible for the economy to grow steadily and in a more harmonious way. The difficulty we have at the moment is that... So the old social contract was basically negotiated in factories, like on the factory floor. It was all about, okay, well, we, the workers, will accept the alienation that comes with division of labor, but in exchange, we want job security, and steady wages, and various things. And that became the social contract that has been the cornerstone of Western economic development from right after World War II to the 1990s. And then the great financial crisis put an end to that and brought the entire system into a deep and long crisis.
So if you want to understand what's the next social contract, the one that fits the new economy of computing and networks, I think you need to look in two different directions. One is the whole economy of self-employed workers, freelancers, et cetera, because that's enabled by computing and networks. All the tools and the platform that have been deployed by tech companies make it easier to work as a self-employed person or a freelancer.
So it will never be the majority, and the majority of workers will always be salaried, but what's being invented in terms of a social safety net in that particular segment of the market will become the standard for an economy that's, well, much more erratic. We don't have, I think, the stability that came with being a factory worker in the 1950s or 1960s, is gone forever. And so every worker, regardless of the sector in which they work, will have to learn to cope with the uncertainty and the instability that self-employed workers experience on a daily basis. And we need a safety net to mitigate that. The other interesting aspect of the safety net, I think, is housing. And you mentioned Mamdani and he's being integrated today or tomorrow, I don't know, as the new mayor of New York.

Inaugurated, but it's funny because also the integrated does kind of fit ironically in the larger discussion about his immigrant status and all that stuff. But yeah, integrated and inaugurated.

Yeah. And so, as you know, he won on affordability and specifically on housing because New Yorkers are fed up with having to pay too much for housing, and the younger generations can't even start to invest in their own house, et cetera. Why is housing so crucial? It's because in an economy where factory work is entirely automated, like it will soon be thanks to robots and AI, and China is already showing the way because they're investing massively into those technologies, because they have a demographic collapse, so they need to replace workers with robots. They don't have a choice. So the Chinese will come up with the technology to automate every factory on earth, which is good news in a way. It means that we won't close the factories to send them offshore. We can keep them because no one's employed there anymore.
But on the other hand, it means that most workers in the coming decades will be employed not in factories, but in what I call proximity services. That is all the jobs where being a human makes a difference, be it in education, healthcare, retail, hospitality, elderly care, childcare, et cetera, et cetera. The problem with those jobs, if you can use the word problem, is that they tend to be located where your customers are. It's not like a factory that you can locate outside of the city, and the workers buy cheap houses around the factory. No, if you work in proximity services, you need to interact in-person with your customers, which means that you need to live not that far from where your customers are. And that explains why proximity service workers are concentrated in large cities where they can't afford housing.
So in a way, the social safety net of the age of oil, automobiles and mass production was negotiated on the factory floor. The new social safety net will have to be negotiated around the issue of housing in dense urban areas, which is an entirely different context, an entirely different narrative, and a very different way of finding a balance of power between workers and businesses.

That is such a brilliant, interesting, creative articulation of the problem and one way that it could be addressed. I've never heard anyone else describe it. Is that something that you feel like you've sort of largely come to on your own? Have you also heard other people describe it in those terms?

So I wrote a lot about it around 2018 where I was really into finding the next social safety net, et cetera. But I'd say I got two sources of inspiration. One is a book called The New Geography of Job by an Italian economist called Enrico Moretti, who teaches at Berkeley, so he lives in San Francisco.

The Geography of Jobs.

The New Geography of Jobs. And it's exactly about that topic, the fact that in the past, the jobs were outside the cities because they were mostly in factories, but today the jobs are software developers and proximity service workers. And so they're all in cities, which creates the housing problem that exists everywhere on earth. Another book, less known, is called Hidden Giant by a social activist called Tamara Drew... No, Tamara something, Hidden Giant.

So I'm looking for it now, Sleeping Giant. Sleeping Giant is the name of the book by Tamara Draut, it looks like. So you've already given me two. Both of these have been added to my... I'll have to see if I can find a hardcover version of Sleeping Giant, that's new. It looks like there aren't any. There is of the previous book. So those are two fantastic books, Nicolas. I'm going to definitely read those.
I also, just to close with one quick question here, it seems to me also that something else that needs to be part of the new social contract is something that addresses the emergency in health and healthcare in the United States. And it seems to me that that solution has to come both from the sources of illness and the cost of intervention. So dealing with the classic issues, which is the cost of healthcare itself, but then also making some fundamental changes to the incentive structure, whether we're talking about regulations related to agribusiness that drive further down to the food, supply chain and what people are eating, but also sort of more heavy-handed things that were very unpopular when someone like Michael Bloomberg proposed them in New York City, his equivalent was banning Slurpees.
But I often think about some things that aren't that difficult to sell and that need to be thought about, which is, for example, the way in which we sell certain types of ready-made snacks, like a drug at the checkout counter, which when you look at what the primary causes of disease are, I think now obesity is the primary driver of cardiovascular illness. It's not heart disease, right? It's surpassed it. So we're learning more and more about the negative impacts of inflammation on the immune system and how that leads to an explosion in cancers and other illnesses. So it seems to me that it's not just going to be about housing. I think that's a brilliant framing. It also seems that in order to address the issue, the issues that people are facing that really matter to them, the healthcare issue has to be addressed.
And to some degree, the education, the cost of education, though. I do think that technology itself and the private sector can actually do much more to address that, and that we don't necessarily need as much help from the government side. I could talk to you for another two hours, so maybe we'll have to arrange a conversation where we just talk about the future, Nicolas, because that would be very interesting. So again, what's the best way for people to follow your work? What are the primary blogs they should be reading, and where can they contact you or where can they follow you?

Sure. The entry level is to follow me on LinkedIn because I post almost every day some insights, or some ideas, or some interesting stuff I've been reading. If they want more, they can subscribe to the newsletter or both newsletters. So Drift Signal, which is my personal newsletter, and Currency of Power, which is about more the monetary stuff and crypto and the rise of stablecoins and what it will change, how it will change the financial system. And then the advantage with reading newsletters is that it's a two-way street. They can reply, send feedback, or connect with me. I'm happy to... I also see it as a great networking tool. So I'm always happy to have new people joining my mailing list and getting to know them.

Well, again, thank you so much for coming on. This is really wonderful. I recommend everyone check out your work, and you've given us a lot of other books to read as well. So we'll all be very busy after this interview.

Thanks, Demetri.

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Today's episode was produced by me and edited by Stylianos Nicolaou. For more episodes, you can check out our website at hiddenforces.io. You can follow me on Twitter @kofinas, and you can email me at info@hiddenforces.io. As always, thanks for listening. We'll see you next time.