Theres Only One Way Out Balaji Explains

Western civilization’s over. Uh, America’s over. Western Europe, as we know, is over. But the internet is just beginning. If tax revenue is a few trillion a year, but compounding debt is at 175 trillion a year, obviously, it’s unsustainable. It’s going to go to zero. But is taking the L then admitting this and and allowing the separation to happen.

Taking the L is admitting that that you you can’t throw good money after bad. You can’t also throw your spiritual energy behind a lost cause. Instead, when you write it off and write it to zero, the west is going to zero. America is going to zero as we know it, right? Then you say, “What can we rebuild?” Much more important than allocation is location. Choose your location. Just like the pole came to the UK, maybe the Brit goes to Poland or to Dubai, which a lot have done. One of the best things you can do is liquidate, immigrate, accelerate, and reduce your cost structure. AI isn’t taking your job. AI is turning you into the CL. Balaji, good to see you. How are you? Good. Good to see you too, Peter. These are very interesting times. Uh I’m trying to understand at once this collapse in trust which has been accelerated with everything that we’re seeing around Epstein. uh the rise of AI which feels like it’s accelerating right now and the potential bankruptcy or insolvency of the state. I messaged you the other day and you said there’s a a potential for Silicon Valley to go to zero. How what’s your mental model for the world over the next 10 years? Well, it’s hard to model out 10 years because a lot of things happen. Um I mean you know the earth will go around the sun and the moons will go around the earth. Uh I know that sounds trivial but that you can plan things like space you know like space launches and you know like rocket launches and satellites and stuff on that basis. Um but many aspects of human behavior I think are going to change. Uh just on the points you just mentioned why do I say it’s possible that Silicon Valley goes to zero. So there’s an important graph. I will actually uh I will share it with you. Uh Zero Hedge tweeted it and so on. It shows the uh cash flow of free cash flow of the Magnificent 7. And because they’re spending so much on these AI data centers like these which are some of the most profitable businesses in existence, you see a huge hit visible in their in their cash flow because they feel that AI is so existential and it’s so expensive and billions and billions and billions of dollars are going into it’s this gigantic gigantic spend. And the thing about that is obviously AI is really important. Um, but the weird thing is that this multi-t trillion like it’s clearly an invention on the scale of a multi-t trillion dollar innovation because it disrupted Google search, right? Disrupted search, it disrupted summarization, disrupts email, disrupts CRM, it disrupts image making, video, movies. It really is a big deal, right? It’s a genuinely genuinely big deal. It disrupts, you know, robot guidance, blah blah blah blah, all kinds, you know, endless industries. And yet it may actually end up being part of what disrupts Silicon Valley itself. And the reason is there’s several things that are aiming for Silicon Valley the place. There’s the anti-tech backlash with like, you know, many Democrats. They’ve been disrupted by the internet. Like we talked about in the last podcast. The internet disrupted blue America. It took away their control over media and money. Um so speech, you know, went to social media, media went to AI, and money went to crypto, right? So they fought really hard and in 2024 2025 Democrats lost control of speech, media and money, right? They with social media, with AI, video with cryptocurrency, their strongholds have been destroyed. They lost not just control but also control of their jobs or livelihoods and so on and so forth. And they’re really mad, really mad, incandescently mad. I can’t express how angry they are in words at the tech guys that they feel did this to them, who also, by the way, took control of their beloved government, right? which gives them all kinds of jobs and so on and so forth, right? And so if you look at Blue Sky, you look at threads, these are people who, you know what it is? They’re blue MAGA. You know why? Yeah, I do know why. Yeah. It’s like you see them on the street and these protests and it’s actually all older Democrats now. the proxies have gone away, you know, the the proxy of BLM and and all these other things that, you know, the various proxy war movements that they had, domestic proxy war, all gone away. And it’s all just essentially older white boomers, right? Blue blue American Democrats, and they’re so mad, so mad, unbelievably bad. Their NOS’s, their universities, budgets are getting cut. uh their their media jobs are facing competition from AI basically the you know with with a few exceptions like you know NT still has its subscriber numbers up but they’ve lost a lot of cultural power really I’d say irreversibly so these guys essentially blame the internet for all that on their side the you know the red Americans blame China and the red Americans haven’t fully accepted defeat yet but they have also been defeated just like blue America lost their control over speech media and money red America has lost the trade war proxy were in the cold war to China. Why? They lost a trade war because China won on rare earths among many other things. Like China’s, you can’t fight your factory, right? China, the US military is made in China. You go and look at the Tomahawk, the JDAM, and the parts are made in Chinese factories. The proxy war, you know, basically Russia is likely to win the proxy war in Ukraine. It certainly hasn’t lost. And so China really, who’s the winner of the Ukraine war? China and then everybody who stayed out of it to right who’s illusions of the Ukraine war obviously Ukraine and America and Europe but actually also Russia because Russia became a Chinese colony right like Russia’s price uh because Russia essentially went in with you know like this insane kind of um thing they thought they were just going to win in a few days like they did with CAMA 2014 and they went in and without Chinese support they’d be toast but the Chinese charge a pretty penny for that support and so power of Siberia goes to China and China also sells drones to the Ukrainians which just to make the Russians happy. So China basically plays both sides and China comes out the winner, right? So China won the Ukraine war or like it’s it’s maybe there’s something that’s going to change things. You know, history is uncertain, but at least it doesn’t look like NATO is going to pull out a win and the US is talking about winding down support in Europe. And finally, China won the cold war because the national security strategy that came out in November 2025 is um is something where it talks like he said talked about everlasting peace with China and the US is pulling out of uh basically Asia and they’re doing so in such a way they’re like um you know we want Japan, we want other countries to pay for their defense and actually do actions. We can’t shoulder everything and so forth. So it comes across in a seemingly hard-nosed way. But think about how different that is from John F. Kendes pay any price and bear any burden to defeat communism. Right? Instead, the national security strategy literally says American elites overestimated America’s ability, not simply willingness, but ability, and they use that word ability, to fund a giant welfare state and all these wars and so on and so forth, right? So that means to summarize, Democrats lost to the internet, Republicans lost to China, and so the future is China versus the internet. So if you take the Ray Dalia thesis for example um which says the US empire is going to zero and uh China is a successor. You take the sovereign individual thesis which says the west is going to zero because of debt and so on and the internet is the successor and you superimpose those two and you say they’re both right. Then you get the future China versus the internet AI versus ZK, right? Total surveillance versus total encryption. you know the total state versus the sovereign individual and so on and so forth. Now a new faction factor in this that I’ve sort of realized more and I kind of knew about it but it’s interesting to see everything happening and fast forward is it’s possible that Silicon Valley also goes to zero in this process and I mean Silicon Valley is a physical place. So historically you know if you talk about the internet you would think of that as being the same as Silicon Valley but actually the internet is gradually gradually decentralized. There’s now 420 cities that have at least one unicorn, right? So there’s 419 of them that are not San Francisco or 418 that are not San Francisco and San Jose, right? So that means you don’t need to build a billion dollar company in the Bay Area or even in America anymore. You can just do it from the internet. Cryptocurrency is decentralized. Most crypto holders are global. Certainly most social media users are not in America. Um you know you have apps like Tik Tok that are globally competitive that are not in America. AI is also decentralized where most of the downloads of open source models are Chinese models and the big thing I think that’s the last step right physical AI has already decentralized do you see the Chinese harvest festival the 226 right yeah their robots work right why do they work their speed of iteration is faster why is their speed of iteration faster among other things they have every single producer of screws and actuators and whatever within a you know one mile radius right they have the same density of physical talent and manufacturing plants than America’s digital stuff. Can America do that? No. Why can’t it or not easily? Why? Well, first of all, like a supply chain doesn’t just mean you can’t like order it off Amazon. A supply chain means you’ve had thousands of companies go through years, sometimes decades of natural selection. the strongest survive and then the other ones go bust and then those strongest are like really good at making hair dryers or you know rotors or something like that and then they just supply them to the entire world at China scale and they have enormous in like every you know for example just like uh the US has Detroit for cars and it has Hollywood for movies and so and so forth China has like small cities that specialize in haird dryers, washing machines right every possible variant of that you will find within in a few miles radius. And so if you you don’t normally give that much thought to household objects, but you know, the heating coil in a haird dryer, the fan, like does it look like a you know, is it a home hairdryer? Is it a commercial one? Is blah blah blah. Like there’s all these different variations of it just like there are for a camera, right? And so all that stuff, all the expertise and all the stuff is in China. And nonobviously, you know, someone made the point the other day that, you know, Japan makes, you know, toilets, but guess what? the ceramic from that the same same guys who do that that’s actually also used in like semiconductors and and so on and so forth the manufacturing of semiconductors so it’s not obvious sometimes something that seems really trivial can become very important we know this in the digital context why video games led to GPUs led to AI social media led to training data led to AI right so it might seem oh we’ve got some hair dryers or whatever what does that matter you know well maybe hairdryers lead to rotors and rotors help you lead to drones and drones let you lead to, you know, large drones, military drones and so on and so forth. I don’t know. I’m just giving an example. I’m making that particular one up, but you get the concept, right? The mechanical engineering, the civil, not the civil engineering, but the mechanical engineering, the chemical engineering, all the stuff to to make these physical objects work is at high density in China. So now they’ve put it together in arguably the most complicated kind of device ever made, a humanoid robot, right? Why is it more complicated? Because, you know, a car like obviously a car is hard to make. but it’s nowhere near the level of flexibility and configuration and so on. If you do the math for uh like a like a hand, right, or a gripper or something like that. So, you know, more than 15 years ago, I built a clinical genomics lab with a six so-called six degree of freedom robot arm, right? So, that’s like X, Y, and Z. And also theta, Fi, and S like the angle of the arm, right? So, it moves to location and it orients itself and whatnot. And it has other things like is the is the hand open and closed and so on. This kind of arm can actually do a lot. It’s almost like tweezers on a um I don’t know how to put it. It’s like a Yeah, it kind of looks like almost like allig an alligator like this, right? And it goes and it grabs something and it moves it there and whatnot, right? I can show a video. Those kinds of arms can do a lot. Uh but actually it’s quite non-obvious to program their exact path like how it goes from here and it moves to here. This is something which is called inverse kinematics. Like you’ve got a hand that’s here and you want to move it to here, right? We know. Imagine there’s a bunch of obstacles over here. We just do that in hardware. Like our brains know how to do that. It’s actually a hard thing to program that, right? That’s like one of many hard problems in robotics. Now you have to do that when the environment is changing. And you know that’s what athletics is to be very athletic is to be able to do that. So anyway, the point is um why does Silicon Valley potentially go to zero? They have uh so crypto is decentralized and gone global. The unicorns and how to make software companies decentralized gone global. The talent has been stopped from coming to America by the bans on H-1Bs and research visas and so on. And I understand why Americans are doing that. But it just does mean that um like all these high IQ people that used to come to America for free are no longer coming there anymore. they’re going to other place, going to Dubai, going to Singapore, staying in their own countries, billing them up. Um or or just billing on the internet. Um you have the wealth taxes. That’s a huge one. That’s really maybe the most obvious that’s driven. Do you know about this? Yeah. What a stupid idea. Well, is it stupid? It is stupid. So there’s there’s a sense I’ll give the V1, the V2, and the V3. So these wealth taxes basically it’s like if you have it’s a the billionaire tax, right? They actually proposed something like this years ago in 2020 where it was targeting the 30,000 high netw worth people in California. They’ve reduced the number of people it was targeting to just 200 billionaires to remove the political base to oppose it and to make it sound less sympathetic. Right? 30,000 people could probably organize 200 people. It’s harder. And they made it a much higher tax on a much smaller number of people. Okay, that’s you know that was a big change from 2020. They got the Democrats got smarter about it. And this billionaire tax basically says if you are a billionaire in the sense of a billion dollars in net worth in some stock at some definition um then you have to fork over and it’s supposed to be one time of course it it’s never going to be one time a 5% uh tax on your assets as of I believe December 31st 2026 but it goes up 10x if you have 10x voting control so it could be like 50% of your assets now this meant that Zuck Paige Brin Teal and Elon Elon a while ago have all left California bezo has actually left Washington state. Guess what? That’s that’s the founder of Facebook, the founders of Google, the founder of X, the founder of Amazon, right? And of course, founder of Apple is dead, right, which is Steve Jobs, right? So, who’s left? Actually, only Nvidia, right, is still in California. I don’t think Jensen Huang can move. He’s also liquid due to Nvidia stock. He has he has different circumstances than the others. That means um Facebook, Amazon, Google, Tesla, right? Out of the state, right? Apple CEO is not a founder. Doesn’t have as much stock. Maybe he can’t move. Um Nvidia, they’re they’re still there. Um and maybe there’s someone I’m forgetting, but basically that’s uh that’s a lot right there, right? And uh the thing is that means that the most I mean these are people who literally founded Google and Facebook and Tesla and Amazon some of the most resourceful well-resourced people in the world right genuinely can run through brick walls and build multicontinental supply chains and solve unsolved problems in computer science you know and they couldn’t solve California okay that’s a really important point it’s like when Elon you know in May 2025 He replied to someone on X. He said, “Did my best.”