By Eric Peters, CIO of One River Asset Management
Red Buttons: Russia has 6,255 nuclear weapons, followed by the US with 5,500. China has 350, France 290, the UK 225. Pakistan has 165 warheads to defend itself from India, with 156. Israel is estimated to have 90 nukes. North Korea is believed to have enough fuel to build 40-50 nukes. Iran is headed there too. We detonated Little Boy over Hiroshima in 1945 and killed 150,000. It had the force of 15,000 tons of TNT. The average nuke today contains the force of 100,000 tons. Many are far larger. One such weapon dropped on New York City would kill an untold number.
Fat Fingers: Vladimir Putin controls Russia’s arsenal. Biden is America’s commander-in-chief. Xi Jinping rules over China, potentially for life. There’s Macron of course. Boris Johnson too. Imran Khan is Pakistan’s Prime Minister, although Arif Alvi is its President and commander-in-chief. Modi is India’s Prime Minister and regularly engages in petty skirmishes with two nuclear-armed neighbors. Naftali Bennett is Israel’s PM. Kim Jong-un leads North Korea with ten stubby fingers. And who could forget Ali Khamenei, Supreme Leader of Iran for life.
Lonely: One thing uniting humanity is the belief that the majority of earth’s 14,000 nuclear weapons are controlled by men who are mentally unstable and unfit to wield such awesome power. Some of us believe 100% of these weapons are controlled by such people. Barely a person on the planet would choose a nuclear war, yet we created a system that empowers others to do just that, on a moment’s notice. An alien would likely observe that such a concentration of power is a gross failure of any species. Perhaps it’s a stage of development that few, if any, advance beyond. Maybe that’s why we have not been visited.
Inevitable: Absolute power corrupts absolutely. But not all power is absolute. So we observe gradations of corruption, usually corresponding to the degree to which power is concentrated. The Catholic Church is reluctantly confronting its decades of unforgivable sin, buried beneath bureaucracy. Whole industries have done the same. Big tobacco. The Sackler’s Purdue Pharma opioid epidemic. And corruption is contagious. So those nations that fight against it and honor the rule of law outperform others. But even in such societies, the battle is never won. We have come to accept that there is no better system. But nothing in human affairs is inevitable.
Impermanence: Money is central to all modern human activity, yet it is an illusion. Central banks operate with governments to distort its value at will. The concentration of their power is as breathtaking as it is difficult for the citizenry to comprehend. While it is generally wielded with the best intentions, the impact on us all are profound. Since Lehman failed, global central banks have purchased $23.3trln of financial assets, lifting to new highs the fortunes of those who already had wealth, so that US private sector financial assets are now 6.3x GDP (up from 2.8x in the early 1980s). Such a societal choice was never put to a vote. And this system, like all systems we have created, is surely impermanent.
Anecdote: “The world as we have created it is a process of our thinking — it cannot be changed without changing our thinking,” wrote Einstein. Like much of his work, it contains many layers. And as with all things profound, the observation is timeless. Einstein helps us understand how we can have such deeply divided nations. They are in fact different realities, created by their respective inhabitants, as vivid to one group as the other. Only by opening our minds and changing our thinking can we connect the two.
But Einstein also challenges us to examine our collective beliefs. One assumed truism is that the world must operate with centralized power structures. Tribes, kingdoms, empires, nation-states; we experimented with them all. And armies, religions, universities, corporations, financial exchanges, central banks. Atop each sits a King or Queen, President or Pope, choose your title, the function holds. Naturally, we have various methods of selecting leaders, and ways to empower or restrain them.
We’ve also explored a variety of structures to distribute economic output. Feudalism, capitalism, socialism, communism. Some believe passionately in one or the other, but we all accept the broad structure because we assume the world cannot operate at scale without a central authority, a clearinghouse to mediate our disputes, set our standards, define domestic laws, international too. And enforce them. It is hard to imagine a world without centralized authority.
But for the first time in human history, a new technology allows us to build decentralized accounting systems we can all trust. This is a stunning breakthrough upon which entirely new governance systems can be built. Bitcoin was the pioneer. Its success has spawned countless new applications, some more decentralized than others. The innovation has barely just begun and now attracts the brightest young minds across the world, allowing them to think about new, more inclusive ways to organize. Venture capital has followed. Speculators. The frenzy itself is breathtaking.
And when we look back, 100-years hence, we will surely see this as the period when we began a great transition, even if today, we cannot yet quite imagine the world we will have created.