I feel that time has come, where once again we enter a new world order.
It looks like the global financial system we use today, has run it's course.
The pandemic has weakened all global currencies, due to governments having to borrow so much,
and reduce rates to get us through COVID via the practices they deemed necessary.
But we have gone from one black swan event, to another tragic black swan event.
We were feeling inflation all across the world, some of it due to supply chains, but a lot
also attributed to these extreme monetary policies.
And just as it felt like we were coming out COVID, and we could start making plans for
life to return to normal, we enter devastating war and destruction.
The most important new world orders we have
seen over the last century, that reflect the where the global financial system is today,
well we would start with Bretton Woods.
In economics this is a very important time.
After the second world war, Europe was destroyed, and broke.
The US was the left standing, and the wealthiest nation on the planet.
National debts were at records highs.
Something had to be done.
The US dollar was still in the gold reserve, and ended up becoming the global currency,
that all other nations would back their currency on.
Then came the Marshall Plan, to rebuild Europe.
The world had a global currency that was backed by gold.
Except the US printed more dollars, and other nations worked out that there wasn't enough
gold for such spending, and wanted to convert their US dollars to gold.
Nixon took swift action, and without the senate or congress, took the US dollar off the gold
reserve.
Which was literally the same as stealing all other nations gold reserves that were backed
with US dollars.
We then saw insane levels of inflation.
Stocks and property increased too, as people wanted real assets, and the US dollar just
became a fiat currency.
Of course the US dollar quickly became backed by oil, with the petrodollar.
To sum up two very major events in just a couple of paragraphs.
And here we are today, the dollar has once again inflated, except there is no life line
this time, of taking the dollar off the gold standard.
To quote one of the greatest economic minds of the 20th century, Von Mises: "Government
is the only institution that can take a valuable commodity like paper, and make it worthless
by applying ink."
Except now we have war too, and oil prices
up well over 50% from the start of the year.
That is an insane jump, and will be felt massively in the global economy.
Along with commodity prices rising, including basics like flour.
This is getting serious.
We are also seeing lithium and nickel prices spike too.
I would say it likely this is all temporary, and should eventually return to some normality.
Tesla has long term mining contracts, and have surely hedged all of this, I don't think
this will impact Tesla's costs greatly, especially not compared to the competition.
Oil, is inelastic, no matter what price it is, we still need it, or there is famine.
It is essential.
It just goes to show how dependent on oil we are.
We often don't realize until it is presented like this.
Companies like Tesla make the world so much better, by centralizing energy and transport.
Sourcing oil and refining it, is not feasible, or even possible for many nations.
However, if a nation can run on EVs and solar then they don't need fossil fuel dependency.
The inflation is one element to what we are
seeing the global financial system, but we have also just witnessed another.
If governments don't like you, or what you are doing, then you can be deleted from the
banking system.
You can have your accounts frozen, or assets ceased.
Similar to what we saw with the Canadian truck drivers, but also with the largest nation
on the planet.
Russia is being deleted from the economy.
Now this is a wake up call to many people, organizations, and nations.
This is pretty serious.
Finance is centralized too.
Except of course we do have defi, with cryptos.
Well Bitcoin, personally I don't think of any of the other major cryptos as decentralized.
Honestly bitcoin is to cryptos like Tesla is to EVs, there is no one else close.
No not even Doge, I don't know why Elon pumps Doge, my only guess is its a way to sandbag
bitcoin.
But just remember, its bitcoin on Tesla's balance sheet, and it was bitcoin that Tesla
accepted as payments for vehicles.
I know doge is accepted to buy some items online, but it's just novelty.
The buck doesn't stop there, and I am talking
about the literal buck.
I.e.
the dollar, the buck was derived from when people used to use deer skin as money, if
I recall in Canada.
A buck being a male deer.
Yea, it's not just money that people, organizations and nations are realizing how little control
they have, no, it's everything.
But currently energy.
This is not a new lesson.
This was well established back in the 70s when we had the oil crisis.
Prior to this oil was very cheap, hence why Cadillac would have cars that had engines
as big as 9 liters.
Can you imagine how much gas that would consume?
The big 3 US autos were allowed to be as complacent as they like.
They were paid up in cronyism to stop any potential threat of domestic competition,
and it worked.
No need to be innovative, American cars were still a lot of car for the money.
I remember when I was a kid and my dad would take us to America on holiday, the rental
cars we would get were always so exciting, they were enormous, and had luxuries like
electric windows, leather electric seats, and air conditioning.
Like I said you got a lot of car for the money.
But America got a big shock, when the Middle East demonstrated to the world how much power
they hold.
It was brought on by the Yom Kippur War, and the Middle East's retaliation to the support
the US gave Israel.
This was capitalist warfare too.
The Middle East using its powers to control a war, very similar to what we are seeing
Russia do here.
Ok, this resulted in the oil shock, and it wasn't just the US, other countries too.
A big wake up call to America, the wealthiest nation on Earth, who realizes a small little
desert in the world controls their entire existence.
And America managed to remove themselves off the dependency on oil from the Middle East.
I mean whats the point of having oil, if you can't depend on it continually, as at any
time if it stops, your nation grinds to a halt, and famine would spread.
It's major.
And it's not just oil, but energy too.
All nations will now be scrambling for sovereign energy.
Due to the fact we now realize that we cannot
necessarily depend on other nations for energy and oil, then each nation will likely be doing
what they can to mitigate this issue as much as possible.
In economics we talk about domestic production, and how some domestic industries need to be
kept going, even though there are superior, lower cost versions from overseas, and the
local supply may need to subsidized even, as a result.
Well this is partly why.
What if there is a war or something, and suddenly you can no longer source such essential items.
The knowledge, experience and technologies of producing said goods would have been lost.
The example that tends to crop up in economics books is the shears and scissor industry.
The US can import low cost scissors from China for example.
They close down their scissors manufacturing plants, and forget how to make them, it's
not necessary any more, competitive advantages of nations and all that.
Then if there was a war, and suddenly the US can't import scissors any more, and they
have forgotten how to make them.
Like I said, tends to be the textbook example, but think further, think about the likes of
aircraft manufacturing, and how important it would have been to remember how to make
planes, in the time of war.
Of course NASA is also under this category.
Covid opened our eyes to how dependent we are on Taiwan for semi conductors, now there
will be a lot more locally produced semi conductor fabs.
The world is better off economically with global trade, entering the global market and
WTO, well that takes your nation out of poverty.
Like we saw with China, or the Asian Tigers, Taiwan, Hong Kong, Sinapore and South Korea,
or even the transformation of Japan after the war, becoming the world's richest nation
in history, until it wasn't.
Nations will scramble to set up their global
independence, to become as self sufficient as possible.
This may result in less global trade.
Less manufacturing outsourced overseas.
Likely resulting in further manufacturing innovation.
This is what happens, when you have low cost labor, innovation suffers, manufacturing was
sourced to the largest army of low cost labor on the planet.
Innovation in manufacturing has not come far, of course not until Tesla got involved, and
realized no manufacturing process on the planet right now, are capable of making enough EVs
and batteries, and had no choice buy to innovate.
I would expect that this would mean a lot of manufacturing jobs would return to the
US.
This would obviously increase the price of goods, although we are now circumventing the
insane shipping prices.
Also we don't know how much longer China can peg themselves to the dollar, if currencies
collapse.
China should be in a position itself to also be self-sufficient now.
However, it will be tougher for other nations to support themselves with international dependence.
In the US there could be negative unemployment rates.
As it once again becomes a nation of manufacturing.
Some companies will likely set up more local manufacturing factories, to provide the local
market.
For example Nike might have a factory in the UK, to serve the UK market.
Similar to what Tesla are already doing, wow, how did Elon see this coming already.
Anyone seriously impressed?
More 4D chess moves.
Elon can see about 10 moves ahead at this stage.
Due to higher cost labor in these developed nations, with manufacturing jobs that were
previously outsourced, this will increase the costs of all the goods produced.
Which again, inspired more innovation.
Suddenly if a machine can replace more valuable labor, making said machine more valuable.
It was complacent to just hand over manufacturing to low cost labor.
It holds back innovation, look at the South in the US, using slavery held them back, less
incentive to innovate, if you don't have to do the work.
Despite the goods becoming more expensive, as there will be so much more employment then
wages will rise to adjust.
That eventually we hope that the average person can afford e.g. a pair of locally produced
Nike shoes.
I don't know to what extreme we might see these in all honesty, I am just presenting
the concept, and thinking it through.
Obviously several other economists would come up with several other possibilities, so please
tell me your thoughts too on how you think some of this will play out.
Nike was just an example, and I don’t think
it would go to that extreme.
I think nations mainly don’t want any other nation to have so much control, or power over
them, with trade, that they could send their nation into famine if they so chose.
We depend on other nations to keep us going, all nations are interwoven into international
commerce, its like trying to separate the egg from a pancake.
Of course minerals and resources from mining, obviously depend on only nations that have
those locally sourced.
We thought climate control was going to be
the major mover for Tesla, but this nationalist movement is going to further catalyze the
entire industry.
The de-centralization of energy and transport that I have been talking about a bit last
year.
I was referring mainly to the individual, but it's just as relevant to a nation.
Obviously solar and battery is a path to sovereign energy, along with of course electric vehicles.
The things is, it doesn't mean Tesla can move any faster.
However, it might mean that all other EVs increase in price, as demand goes through
the roof, the same roof that oil prices also went through.
Well if the Chinese are able to raise the prices of their EVs by about $5,000 I think
some of them could get close to a net profit, even if they are at half volume production.
Except the thing is, despite what so many people think, well the Chinese EVs, they don't
make a fraction of as many as you think.
The biggest selling Chinese EVs have tiny batteries and are not legal for sale in any
developed nation.
So we aren't going to really be able to see any big numbers there, besides its about batteries
anyway, so it would make sense to focus on how many battery factories are being made.
I think these oil prices have got to be killing legacy autos now.
I mean even when gas prices return, the ICE driver will never know what the price of gas
might be tomorrow.
Do you get it?
If gas goes up too much, ICE just became about $2 to 3,000 more expensive to run every year,
than it did last year.
Thus making EVs that much better value.
Demand for ICE down, moving to EVs.
Higher demand, means that EVs can raise prices.
In the other words, some EV companies might make a profit.
Well, only the Chinese ones potentially.
But again it doesn't mean they can make them faster.
Even if they build extra auto factories, it doesn't make any difference.
It's still the batteries that we have to wait for.
The currencies are in question, foreign reserves
are not guaranteed.
What will nations use for their reserve.
If the US will renege on treasury bonds with Russia, well what's to stop them not honoring
them for China.
Big wake up call to China's trillions of US dollars in their foreign exchange reserves.
And I think this is it.
The world needs a new global base currency.
The US dollar is America's, they get to control it.
Every time the US prints money, and it delfates the currency, well it's not just the US citizens
that are paying for it, like most nations.
No the entire world has to pay for the US printing, as the likes of China's reserves
are diluted when the US money supply increases.
Yes, America has actually been getting away with this for a really long time.
America gets to buy everything, and just pay for it all with debt.
On a macro level Japan makes cars for America, America prints some more dollars, and gives
it to Japan.
Does that sound fair?
This was the Bretton Woods, what a deal.
And these nations have had enough of this.
Particularly as America stole all their gold.
All these nations need to do is change their reserve currency.
They can use their US dollars and spend it all on Bitcoin.
Right now all these nations can use their US dollar reserves to change to a bitcoin
reserve.
It would just take one reasonably sized nation to start this, and likely result in a domino
effect.
The question is at what stage would the US decide it want's it's reserves as BTC too.
And potentially start printing dollars to buy BTC.
Which would mean that the dollar hyperinflated, and potentially the US is left with just Bitcoin
as a currency.
I am not sure if that would work.
If this occurred, and the dollar lost its value, this would benefit for the majority
of the middle class who carry mortgages, but not good for the poor who have their savings
in cash.
Where the economy is at this stage though, I am uncertain.
Tesla is aligned perfectly for these movements,
with decentralized transport and energy, along with the whole climate change movement.
We know Tesla didn't have a demand problem before, but now, it probably would.
This would be too much demand.
Governments may finally look to Tesla and ask what they can do to help.
Russian oligarchs aside, we could see the
largest transfer of wealth in our lifetime.
If over this decade, we find out the Tesla fanbois and Bitcoin maximilists where right,
then these HODLers will be holding the majority of the worlds wealth.
The Tesla community, and from what I can tell the bitcoin too, overall seems to have a narrative
of wanting the world to be better.
We could see these communities, now controlling all the worlds money and energy, deciding
on how we allocate resources.
I really hope to see actions from Tesla or Teslanaires like building solar and battery
farms for sub-Saharan Africa, to give them free power.
Rather than building higher and more exorbitant ivory towers.
Decentralize the world's energy and wealth.
Take it out of the handfuls of a concentrated elite, and there will be so much more to go
around.
Maybe I am an optimist, but given the times
we are in now, I don't think I could cope any other way.
Lot's of doom and gloom for sure.
But this is a transition.
This is change.
Change is not easy.
But we may end up seeing a world with decentralized finance and abundant renewable energy.
If it hadn't been for Tesla and Bitcoin, then I would not have so much hope for the world.
I can't predict the future, I don't know what will happen, but I can prepare for it as best
I can, by running potential scenarios.
Of course I specialize in EVs and Tesla, so I look at it through that lens.
But very interested on all your thoughts too.