The Next Phase of the New World Order Has Begun

So there's a theory that the system we've been living in is going through a paradox. Ben, why do you think that China's issued this directive to banks to trim their exposure to treasuries now? And let me explain. Our economy uses debt to grow. And debt assumes more workers and more incomes to pay for it. But the markets and their values today assume that AI is going to rule the world. AI assumes less workers and less income in the future. So how will this expansionary debt-based system work in a world where AI and robots eat the jobs and the incomes? Both can't be true at the same time. That's the paradox. Are we at the beginning of a new world order where we move away from Europe and toward anything else? And there's a real question about whether there's a massive shift happening now in terms of world alliances long term. Well, it's definitely, I think, a new world order. I think the president has sought to, there's a new world order in trade, there's a new world order in globalization and the way that we invest in our economy versus foreign supply chains. There's a new world order and the president is willing to shake up some old alliance structure. Let me try to explain this idea using four big parts. So part one. For the last 80 years or so, the global economy was built on the Keynesian theory of economics. An easy way to understand what that means is that someone has money, you borrow it, and in order to pay interest on it, we have to make more money, aka more debt. It's also why economists call it the debt-based system. Now, in order for that system to work properly, we need cheap money in the form of low and stable interest rates. And we also have to assume the population of the world goes up over time, more people with jobs, and incomes will keep rising, and that the price of stuff in the world would go up slowly at a rate of about 2% per year, aka inflation. Now, low interest rates in this system eventually lead to something called leverage. Leverage is the idea that instead of using only your own money, you borrow someone else's money so you can make even more money. And everyone is encouraged to do that because doesn't everyone want to make more money? So companies take on leverage. They borrow money to buy back their own stock. Investors borrow to buy assets. Governments borrow to fund spending. And the whole system slowly becomes dependent on borrowing and leverage. Now, that system works for as long as a couple things stay true. Like, for example, it helps when interest rates stay low. That's how debt and leverage spreads through the system. That's also why, for so many years, if you were invested in the markets, everything was good, even though the level of debt was unsustainable everywhere you looked. Well, then there's part two, which is, what about the future of the system? Because the debt-based system only works if the future can reliably pay for the present. That means people need jobs. Society needs to make money. The amount of people that pay taxes and pay into the system needs to grow so that economic activity expands. But now it's 2026, and here's what the future looks like. You've predicted AI will disrupt 50% of entry-level white-collar jobs over the next one to five years. What does that mean for the future of work, right? If you have a child who's graduating high school, thinking about college, thinking about a trade school, what should the future of America be looking to right now to make sure they have a job down the line? So that was the CEO of Anthropic. He's telling us that about 50% of white-collar work will be replaced in the next one to five years. And what that means is that there may not be enough humans in the workforce who will pay into the system, who will keep borrowing money to keep expanding the debt-based system. So investors are like, I've got a question. In a world where robots work and humans don't, who's doing the borrowing and where is the cash flow going to come from? We don't know. That's when this idea of using other people's money, aka leverage, gets a lot more dangerous. Because this can lead to volatility, which leads to deleverage, this cascade of selling. Because no one wants to be the last person holding risky assets when we don't know things. And that leads us to part three, which is the geopolitical story. And what we're seeing right now is the trust between nations getting weaker. There's more uncertainty about what backs the whole system. And so the question is, what is money in this new world? Is it dollars in the form of treasuries? Is it yuan? Is it gold? Is it oil? Is it central bank digital currencies? We don't know. So debt is a global problem. And I think what the gold rally tells you is markets have kind of run out of patience. They're looking for safe havens. That's why central banks are diversifying their reserves. And gold is playing a bigger role here. And in a world where no one knows what's going to happen, leverage is not good. And so what happens next? Part four. The symptom of these questions is what we see in the markets. Software stocks have become ground zero for investors' anxiety over the possible disruption coming from AI. For a moment, seemed like a bloodbath. Then things turned around. We got Bitcoin. We're all trying to make sense of what's exactly happening here. What is happening in your mind? That shows up to us as volatility. And usually where it shows up the hardest is in what's called the most liquid assets, aka the easiest thing to press the sell button on. That means Bitcoin tends to move earlier than everything else because it trades 24-7. It absorbs risk much faster because you can panic sell it on a Saturday, smash buy it on a Sunday, and it's global. And because everything is connected, everything in the system kind of reacts at the same time. Stocks can go crazy, commodities can go crazy, and all sorts of interesting things start to happen, which is kind of what we saw last week. That's a very high level but overly simplified explanation of what I'm seeing. So in this video, I want to explain exactly what's going on, what's happening to Bitcoin, especially how we got here, where we might go next, and how I'm personally investing. So with that said, let's get into it. Hi, my name is Andrey Jikh, hope you're doing well, come for the finance, and stay for another very nerdy macroeconomic video. So let me start with arguably the most interesting asset right now, which is Bitcoin, which has been decimated from its all-time highs. And there's a couple interesting theories as to why, and this one really caught my attention. The theory is that Bitcoin has been captured by Wall Street using something called synthetic Bitcoin. What does that mean? Okay, so Bitcoin originally traded like a normal scarce asset, where price discovery mostly happened on the blockchain, meaning real buyers with real money took custody of their real coins. And that's what made the price go up and down, aka price discovery. And if there was leverage, we could see it on-chain, because it wasn't securitized just yet. But over time, Bitcoin was absorbed into the traditional financial system. And once that happened, synthetic Bitcoins were created. And so today, the buyers and sellers of Bitcoin are not people that are moving coins on-chain. Instead, it's the traders and institutions moving it in what are called derivatives markets. Those are things like futures contracts, options contracts, perpetual swaps, things like that. And this is where you can get exposure to Bitcoin financially without ever touching the asset itself. Therefore, the leverage is not on-chain. It's actually invisible. We don't know how much leverage there is until something breaks. And I know that sounds kind of complicated, so let me just give you an easy example to follow. This right here is my birthday Pikachu. There are many like it, but this one is mine. Now imagine Wall Street securitizes it. First, they create a Pikachu ETF, where the real card sits in a vault and investors trade stocks or shares of it, maybe fractional shares. Well, that alone means that more people have trading exposure to Pikachu without touching the card. Well, then we add futures, right? So that people can bet on where Pikachu's price will be next month without owning it. Then options, so people can speculate on the upside or downside. Then perpetual swaps, so you can go long or short Pikachu with leverage 24-7. Then brokers start lending Pikachu exposure to hedge funds and structured portfolios. They bundle it all inside. At that point, there will be dozens of financial claims tied to one physical card. So the card itself could be like $1,000, but there could be over $100,000 of value exchanged through these derivatives. That's synthetic supply. The card is still rare. There may still only be one, but price discovery is now dominated by paper Pikachu. That's what's happening to Bitcoin. Now, unfortunately, I can't show you concrete evidence of how many extra Bitcoin there are now, but on the low end, estimates range anywhere from between 650,000 Bitcoin, roughly the size of Michael Saylor's strategy company, all the way to as high as 2.5 million synthetic Bitcoin. And that is billions and billions and billions of dollars that gets absorbed by the paper version of it. Now, I want to be clear, this is not the spot ETFs like IBIT, for example, which need to buy the actual spot Bitcoin, but it's the existence of these ETFs is what allows the integration of these derivatives that allow for the short-term control over Bitcoin's price, because derivatives don't have the same supply limit. If investors want Bitcoin, Wall Street doesn't need to find more Bitcoin, right? They just create more contracts for things like options trading or futures markets. So anyway, synthetic Bitcoin is not fake Bitcoin, like in a scam sense or more supply sense. It's real exposure, but it's not constrained by the 21 million coin limit the same way on-chain Bitcoin is. And this is not unique to Bitcoin, by the way. This is what happens to every asset once Wall Street securitizes it. That's what happened to gold, where the price is now dominated by paper contracts instead of physical bars changing hands. That's also why we see a huge delta or price difference in silver between the silver we see in the Comex market versus the Shanghai market, where the silver there is more expensive, because it represents deliverable physical silver. There's a premium. Because what would you rather own, paper silver or physical silver? Obviously the physical version. That's why once an asset enters Wall Street, the short-term price can be tamed and it can be suppressed. That's the bad news. The good news is price control using synthetic supply only works in the short term. In the long term, Bitcoin cannot be controlled and it cannot be stopped. But I'll explain how and why later. The next question I want to help explain is, what happens to everyone's money when the market goes down at the same time? Like if everything is losing money, silver, gold, Bitcoin, stocks, where is that money going? And to answer that question, I think we have to look at this in four parts. So let me explain it starting with part one, which is the debt-based system and leverage. Now a quick side note before we keep going, because this actually fits really well into everything we're talking about, because when uncertainty is rising and leverage is coming out of the system, the smartest thing to do is usually not something dramatic. It's just lowering unnecessary exposure. Now, most people already cover the basics like password managers and VPNs, but there's a big gap most people don't think about, which is your personal information that gets sold through data brokers. And this includes things like your name, home address, phone number, and even relatives. That's what Delete.me helps with. Since I'm on YouTube, my information gets sold a lot. And that's why I've personally been a member since April, 2024. And they've looked at thousands of listings and found that over 50 brokers have been selling my info. Thankfully, Delete.me has removed dozens of them for me, and it runs in the background automagically so that I don't have to do anything. So if you want to start the year off smarter and safer, it takes about five minutes to set up. I'll leave a link down below, or you can go to join delete.me.com forward slash Andre20 to get 20% off for new subscribers on all U.S. consumer plans. Thank you to Delete.me for sponsoring this segment. And now let's get back to it. So part one. For most of the last century, the global economy worked off of a debt-based system where growth was pulled from the future. That's why when you look at stocks today, they have something called a forward P-E ratio. Because the price of stocks you see today are not what companies are actually worth today. They're valued at what their earnings are expected to be in the future. And so investors will pay a premium for it. Now, as long as interest rates stay low and predictable, which today they are neither low nor predictable, the system works really well. If you can borrow cheaply and invest that money into something that grows faster than the cost of debt, you are incentivized, almost forced to do it. It's free money. And a good example of this is Michael Saylor's company Strategy. The whole business model is borrowing money as cheaply as possible because the bet is that the long-term return on Bitcoin will grow faster than the rate or the cost of his loan. That is leverage. Ironically, it's also what leads to the synthetic nature of Bitcoin in the short term. If Strategy really wanted Bitcoin's price to go up, they would buy spot Bitcoin. Not OTC, which happens privately, but that's a separate story for another time. The point is, almost everyone in this debt-based system is incentivized to borrow money. Which means leverage then spreads throughout the whole system. This is where Japan becomes a really important part of the story. Because for decades, Japan kept interest rates at zero, sometimes even below zero. Japan became the cheapest source of money in the world, and their capital, or money, flowed out of Japan and into all the other markets. What that did was a few things, and it sort of explains what's happening right now. The most important thing that it did was it created an environment where leverage, borrowing money, was safe. Because companies borrowed to buy back their own stock, investors borrowed to buy assets, government borrowed to fund spending, and markets got used to this idea that debt could always be rolled over. Meaning, even if your bills came due, you could just roll that loan into another loan. As long as the rate stayed low, that works. So how did Japan do this for the world then? For years, Japan made this possible by prioritizing its bond market over its currency. They did that using something called yield curve control. Basically, the Bank of Japan promised the world that their 10-year Japanese government bond wouldn't be allowed to rise above a certain level. And if it did, the central bank would step in and buy as many bonds as necessary to push those yields back down. That kept borrowing costs stable, not just for Japan, but indirectly for the whole world. The trade-off for Japan was a weaker yen, which steadily declined over decades. And that's what people mean when they talk about the yen carry trade coming to an end. Because now Japan is facing a crisis. It's affecting the whole world. Japan has two options. Option 1 is to defend their currency, the yen. Option 2 is to keep interest rates low so their debt doesn't become too expensive. But they can't do both. For years, Japan prioritized their bonds, which is why their currency against the dollar has been on a multi-decade decline. They did that strategically using that yield curve control. But now, Japanese bond interest rates, or yields, are going up at levels we haven't seen in decades. And when yields or interest rates go up, the government has to spend more just to pay for its debt. And Japan has a lot of debt. Because they buy U.S. treasuries, right? That's our debt. Which means stress in Japan's bond market always spills over into the rest of the world. It doesn't just stay in Japan. I believe the markets are going down because the Japanese bond market had a 6th standard deviation move for the past two days. That would be in their 10-year bonds. But that's spilling over into all bond markets. German yields are up, French yields are up, U.S. yields are up. And again, it's mostly the Japanese bond market. Now, if the Bank of Japan steps in and starts to yield curve control again and try to lower the rates, it sends a signal of easy money, which weakens the yen, the currency. And a weaker yen makes their imports more expensive and pushes capital or money out of their country. They don't want to do that anymore. On the other hand, if Japan allows yields to keep rising to support their currency, stronger currency and higher rates means higher carry costs, which leads to an eventual deleveraging of the debt-based system. And how that looks like to us is, everything goes down. Markets become volatile, especially Bitcoin, which is very leveraged. Now that leads us to part two of the story, which is that in this monetary debt-based system, debt only works if the future can reliably pay for the present. Which is a paradox if AI displaces everyone. Let me explain. Remember that P-E ratio thing we talked about? Stocks are worth what we think a company will make in the future. That's the whole economy. And that means jobs need to exist, incomes need to grow, enough people need to participate in the economy to generate the cash flows that pays for all the borrowing. Except the thing is, jobs are not really doing good right now. In fact, job losses are over 100,000 for January, which for context, is a 17-year high since January 2009. 108,435 job cuts announced in the month of January. That is the highest January total since 2009. That's not good. If there's less people working, less people borrowing, that means less people buying and investing. And we also just recently got something called the JOLTS numbers from the Bureau of Labor Statistics. And job openings came in at about 6.5 million. And that's not only lower than economists expected, it's also part of a multiple-year trend that's going down from the peak in 2022. This matters to investors because job openings are one of the easiest things to understand about our future. That's because companies don't post jobs unless they expect to grow and make more money, which means when job openings fall, it usually means businesses are pulling back. And that's not good. And that's before we even talk about the AI. The job market's already slowing down. So what all of this is telling us is something the markets do not like. It's starting to challenge our investor assumption that growth will be strong enough to support all the current values and all the current leverage built into the system, which at least for now looks like it isn't. Now let's layer AI on top of that. Automation and robotics, those are what economists call deflationary forces. They make things cheaper and faster. How do they do that? They get rid of human beings, right? Now, we don't need more people to work the jobs, so we let the robots and AI do it. And that's why just recently, executives at companies like Anthropic have said that a huge portion of white collar work will be automated in the next one to five years. And so my worry is exactly, you know, if you're someone, you know, kind of coming up in the world and just starting your career, AI is coming at multiple points and it will make people a lot more productive. But I think, you know, that we can't deny that it will also eliminate jobs and probably a large number of them. And this sort of lines up with what we're seeing with the jobs. Now, whether that number is 30, 40 or 50% doesn't matter. What matters is now there's uncertainty about what this paradox means, right? If current values are based on future growth, but less people are working and less people are earning incomes and therefore less people paying taxes, what does that mean? That creates this paradox to the debt based system that we're living in, because the debt based system depends on humans borrowing and working and earning and spending and producing income over time. In a world where productivity goes up, but the amount of human labor goes down, who's going to make the income? Who pays for the debt? Who's generating the cash flows that justify today's valuations? How are we going to justify the capex or capital expenditures for all these tech companies that are spending over $100 billion on technology that people so far are not paying anywhere near what they cost to run? So who then is going to pay for the promises we made about the future? No one knows the answer to that question. And that leads me to part three, which is geopolitical uncertainty. So part three really complicates the markets because now we're looking at much bigger forces and this is what I've been talking about in my last few videos about the new world order and the new world reserve currency and all the things Ray Dalio has talked about. So let me sort of paraphrase. For decades, the global financial system worked because everyone more or less agreed to the rules. That's why we called it the global rules based order. Because after World War II, the world settled into a structure that was predictable. The United States was at the center as the issuer of the global reserve currency and the military backstop. China became the factory of the world. Europe became the consumer and Japan eventually became the lender. And that created something markets love, which is predictability. Predictability is what allowed this leverage to exist and to build everywhere without blowing up the markets. Because investors assumed this would keep going forever. What changed is our assumption of how long this rules based order would go on. That's where we see the trust in the dollar go down. Over time, this has gradually been happening. Trade and sanctions have been weaponized. New supply chains are being restructured. Countries are making deals with each other now. And once that starts happening, countries are like, I have a question. What backs our money in a world where there's no guarantees thanks to the global rules based order? Like if the US is no longer the police officer of the world, do we need to rebuild our own military? And do we need to restart our own nuclear programs? What money are we going to use? Is it still US treasuries? Is it commodities? Is it gold? Is it some form of central bank digital currency? There's no answer right now. And that uncertainty is a big, big problem for investors. And this goes back to leverage and de-leverage because leverage depends on stability across countries. It depends on predictable funding markets and settlement and currency relationships, et cetera, right? But when that breaks down, we see huge spreads on paper versus physical assets because we can't agree across the global market what something is worth right now. Now, I'm exaggerating a little bit, but a really good example is the silver market in the US, which for the COMEX or the paper securitized version of silver and the Shanghai market, which is the physical deliverable silver, they're supposed to be the same price more or less, but they're not. There's a huge difference in price. This is not normal. When nations stop trusting each other, things start to de-leverage. And I want to be clear, this is the part of the puzzle that I'm missing from this story. I don't know what triggered last week's sell-off. We won't know until the headlines. It could be a bank failure. It could be a big hedge fund blowing up. Something happened, right? It's not like investors just woke up to this knowledge yesterday. Maybe it was some systemic fatigue that caused the cascade of de-leverage. I don't know. What we do know is that these transitions of uncertainty are never smooth. And that brings me to part four, which is what comes out of this system is what we're seeing. A lot of the violence shows up in the investment markets. Things go up and down really fast. Sometimes things that shouldn't go up and down that fast, like gold and silver, and it shows up first and most violently in markets that are the most liquid, which are markets like Bitcoin. And so part four is the symptom. And this is why I love investing and talking about this stuff, because in a way, all of this stuff, stocks and crypto and all these markets, it's a way to peek into the future because this stress has to show up somewhere and it shows up in places where people are betting their money. So the markets are just a reflection of what we expect from our future. Okay, then. So if we have no idea what's going to happen in the future, and right now it seems like probably not good things. And if all the markets are losing money, then where did the money go? And surprisingly, a lot of it went into the blue chip stuff, the consumer staples, the boring dividend paying companies, the companies I love to buy because yes, they may not multiply tenfold, but in markets like this, they're pretty stable. And I feel good because I'm diversified. I own quite a lot of them and they pay me monthly regardless of what's happening to the market. I know I'm pretty safe. Now, if you want to see specifically what I hold and you want to track your own investments and see how safe they are, I have a link down below where you can see it all. But for the rest of it, leverage gets unwound really fast. Loans get closed, right? Positions get liquidated. And so for Bitcoin, there's a lot of pessimism. But remember, in the long term, you cannot control Bitcoin's price with synthetic supply because over time, more people learn about it. They learn about how to self-custody and more of it gets held on chain. Like in my Pikachu example, the only way to break the securitization is if you take the card out of the system. You don't leave it in a vault that Wall Street can control. You don't let it sit with someone who can lend against it or reference it or build products on top of it. You don't invest through an ETF. You just physically hold it yourself. And once it's into your possession, then it can't be rehypothecated. No one can write a contract against it. No ETF can claim it, right? You get the idea. That's the same idea as Bitcoin in self-custody. Less Bitcoin on the open market means it gets a lot harder to manipulate. Now, if you're a long-term believer of it like I am and you want to learn how to take control over it and self-custody it, I made an instructional guide on how to do that. That's over three and a half hours long. The link is down below. If you're a complete beginner, it teaches you step by step. But this is why I also stay diversified and I own a little bit of everything and have some cash on the sidelines because at the end of the day, we don't know what we don't know. And sometimes that means something as simple as control over our own emotions, right? If all my money was in something that lost 50% overnight, how would I react? I don't know. Maybe I'd be fine. I'm young now. But if I was close to retiring and I was a lot older, maybe not. In the long term, though, I think it's a gift, right? It's an opportunity for me to buy. This is not an endorsement to invest in anything, but personally, I'm still dollar cost averaging into the market and nothing has changed about my investing philosophy. If my time horizon is still decades away, I can afford to wait it out while I collect some dividends. Or if the market goes back up and maybe it already has, then great. I bought the dip. Either way, I'd love to know your thoughts. Have a wonderful rest of your day. Smash the like button. Subscribe if you haven't already. I'd love to see you back here next week. I'll see you soon. Bye-bye.