You voted for this.
The S&P 500 is 8.7% off its all-time high today, and Trump is signaling that he’s willing to accept a recession as the price of implementing his economic agenda.
“I hate to predict things like that. There is a period of transition because what we’re doing is very big. We’re bringing wealth back to America … you can’t really watch the stock market.”
My Trump-skeptic friends expect me to share their shock and dismay that the administration is teasing withdrawal from NATO, alienating our allies, dismantling our global influence network, risking a trade war with China, and generally hacking furiously at the roots of the empire.
Balaji Srinivasan (whom I like) recently posted “From MAGA to China” on X.
His take is that the Trump coalition (hereafter just “MAGA”) is hyperfixated on dismantling the Blue power structure, heedless of their own dependency on the inflows from the Blue Empire — most importantly, the ability to print money as a consequence of the dollar’s status as the world’s reserve currency.
In this view, America — Red and Blue — is the beneficiary (not to say “parasite”) of the global economic system. The outflows represented by foreign aid, defense spending, “bad trade deals”, etc. are illusory: they’re just the carrying cost of America’s massively valuable reserve currency status, and they more than pay for themselves because they allow USG to print money, and spread the cost of inflation across the global financial system.
And indeed, Trump’s actions make very little sense if you believe that the empire is structured this way, and that Trump is the chief executive of that empire.
But that framing is wrong for several reasons:
First, the empire is not American.
Balaji is correct to identify the dollar printer as the beating heart of the empire — but he grossly oversimplifies where the money flows, and whom it nourishes.
A brief primer: the Cantillon effect describes who pays the “tax” of inflation.
When the Federal Reserve prints new money, the government gets to spend it instantaneously at full value — but it takes a while for everyone else to renegotiate contracts and raise prices.
This means that the first time those new dollars get spent, they command their full, pre-inflation value — but every time they change hands from that time forward, they convey new pricing information, and the recipient of the dollars gets a little less buying power than he thinks.
Accordingly, the biggest beneficiaries of USD printing are the US Government itself, and the “primary dealers” from whom it buys US Treasury securities — which are 24 multinational banks based in the US, Europe, Canada, and Japan.
These banks receive liquidity to invest, while USG gets to deficit-spend on goodies for its clients — and both parties get to hand out this money at its full, uninflated value.
In other words, the banks get to trade in the new funny money for real slices of real businesses, and the government gets to trade it in for real political power.
The next-largest beneficiaries of money printing are:
Corporations who receive the new investment (many, though not all, in the US)
NGOs and universities and defense contractors and healthcare companies who receive federal spending as revenue.
All direct recipients of welfare spending (especially the old and the poor.)
People who earn a corporate wage, US borrowers, and foreign exporters get some positive knock-on effects from dollar printing — while American taxpayers, consumers, small business owners, and foreign capital markets get rinsed.
There isn’t a “last stop” for the Cantillon Effect, but the people who are worst off are those who get the least benefit from the temporary stimulus, who get the money latest, and who have the least flexibility to respond to price increases and push the costs downstream. (A taxi driver is less injured by the Cantillon effect than a salaried worker, because he can renegotiate prices from day to day.)
When Balaji says that MAGAs “don’t understand their own dependence on the dollar”, he is pointing to the fact that a lot of MAGA people are secondary beneficiaries of the dollar empire — they earn artificially high salaries at fake email jobs, they have artificially cheap mortgages, they buy artificially cheap Chinese goods.
While that’s true, they’re also firmly in the category of Bag Holders, as people who earn and spend dollars, and get soaked by inflation.
And since the dollar empire is headed off a cliff, MAGA is facing the limited remaining upside of a few more years of slow decline, measured against the unbounded downside of being trapped inside the empire as it burns.
You may have noticed that the structure of the Dollar Empire precisely maps to the American political divide.
If you’ve ever asked yourself, “What does a globo finance shark have in common with a women's rights NGO in Uganda, or a Bolshevik African studies professor, or an inner city welfare recipient?” the answer is the Cantillon Effect.
All of these people get the new Federal Reserve Notes “hot off the press”: they are the recipients of direct government spending and institutional investment from multinational banks.
These constituencies get to spend the money first, which means they get to trade it in for real things and leave someone else holding the bag. For these people, steady inflation is a wealth transfer, and the fruits of empire. Many of these people live in America, but many do not.
Truly — literally — the money printer is the empire.
And Balaji is right that foreign capital markets pay a heavy price for USD printing. There is definitely an empire. Someone’s doing the raping.
But, as Balaji himself said elsewhere, millions of Americans have themselves been steadily cleaned out by the money printer:
He frames this as “Republicans paid for 2008”, but I think the causality runs the other way: increasingly, the people who paid for 2008 are coming to regard themselves as a discrete political constituency, and becoming Republicans.
“Trump’s America” is essentially the cohort of Americans who have realized that they are not in fact, beneficiaries of the dollar empire — they are, collectively, its wealthiest and most powerful tributary.
Which brings me to my second issue with Balaji’s characterization of Trump’s actions:
The empire does not answer to Trump.
Balaji is right that it would be better if Trump could simply take the reins of the empire rather than dismantling it — but he can’t.
It would be great if he could just command the empire to become competent and credible, and use the dollar reserve status responsibly, and force its propaganda organs to produce good propaganda instead of bad. But getting elected president does not put you in charge of the American Empire — it apparently doesn’t even put you in charge of the executive branch.
To be clear: it’s tremendously important that Trump has captured the Presidential residence and the Presidential airplane and the Presidential stationary, because it creates the public appearance of legitimacy — a rally point and a justification for people with guns to coordinate under color of law.
This is very very good news for Americans, because it means that the confusion of “America” with “the Empire” now works in their favor, instead of working against them.
The President’s practical command of the government may be, as Yarvin says, no more real than the King of England’s — but unlike King Charles, ordinary Americans (including people with guns) believe that the American President runs the American government.
All sorts of resources that ostensibly belong to the President of the United States can now be demanded, and parties who want to deny him those resources can be forced to explain why, or threatened with arrest.
(Of course, it only works if he is willing to do this.)
That’s a position of real power, but it’s just a beach-head — and if Trump tries to stay on the beach, he will be pushed into the sea.
The power brokers of the empire, foreign and domestic, have everything to lose and nothing to gain from American independence. There’s nothing Trump can do to turn them — and if he leaves them in power, they’re going to destroy the empire anyway (along with all her tributaries).
So the tumor has to be poisoned and irradiated — and if we’re lucky, the American successor state will be able to seize critical components of the empire’s power, and emerge from the crisis a strong, free, and prosperous nation.
Of course Balaji is correct that we benefit from the Pax Americana, the dollar’s reserve status, etc. (as do many foreign constituencies, including China) and the transition will be painful.
He’s also correct that the US economy is highly financialized and fake, and needs to be marked to market (though I think he exaggerates this — America only stopped being the world’s top manufacturer in 2010, and still produces more than #3 Germany, #4 Japan, #5 India, and #6 South Korea combined.)
But that reckoning is coming whether Trump does anything or not — and if we can return the state to human control, we have an opportunity to choose the terms of the restructuring.
It may also be the case that the qualities that got Trump elected may not be the qualities that make a great surgeon.
But I’ve seen enough from the people staffing the administration to know that they are not naive about the stakes of the conflict. No one with decision-making authority shows the unseriousness that Balaji imputes to them.
We all know it will take a miracle — but we believe in miracles.
EXIT News
On last week’s full-group call (3/4), we heard from Dan Hess (@morebirths) on the data underlying birth rate collapse. Conversation will be available in full to subscribers later this week.
On Tuesday night (3/11) we heard from Catherine Pakaluk, author of Hannah’s Children, on what distinguishes the most family-oriented women, how we can find them in the wild, and how we can encourage our own wives in raising children.
We will have a NatalCon virtual meet-and-greet for ticket-holders on Thursday, March 13th. If you’re planning to attend, please get your tickets ASAP so that you can participate — get to know the speakers and attendees so that you can get the most out of the in-person event.
After four months, the EXIT Business Incubator is graduating our first cohort on March 17th, with pitch presentations in front of investor judges who will provide real-world feedback. Their choice of presentation will receive a $1,100 prize.
Seattle meetup 3/8 was a great success — ~20 at the main meetup, with another 10 or so at the cocktail hour. The Seattle chapter will be hosting monthly meetups going forward. Check the #PNW channel in the chat for more details.