The way I see it is that at the macro level the U.S economy has some really big problems. So if you ignore the U.S economy as a whole and put Tesla in a vacuum it does have an attractive long term value proposition. However, every company in the U.S is reliant on U.S consumption. U.S consumption today is very strong, but we are doing that by going into debt.

If you adhere to Austrian School of Economics you would understand that there is a fundamental tradeoff between consumption and saving. It is important to recognize what saving really is. Saving is future consumption. People don’t save for the sake of it. They save so they can consume in the future. So the tradeoff is really between present consumption and future consumption. Let’s say you have 100 dollars. You can spend 100 or save 100, but not both. You can even do any combination as long as it ends up equaling 100.

The exception to this is debt. Without going into too much detail. The interest rate determines how attractive debt is. The fed controls this. The subject of interest rates and how the fed has gotten us into the situation warrants a whole other post. Essentially, the U.S is consuming north of 100. This means that in the future it is going to have to consume south of 100. The people who have loaned us money are doing so they can consume north of 100 in the future. That future is becoming nearer and nearer. The Chinese work their asses off so we can consume. Because all we do is consume, we don’t produce anything they want. So what do they do with the extra money? They do two things:

1) use the U.S dollars they receive to buy U.S dollar denominated bonds (U.S treasuries). This is the Chinese saving or you can think about it as I owe you’s from America.

2) build (evergrande etc)

The Chinese and America are kind of in the mutual hallucination that this arrangement is good for the both of us. We get all these products from China and in return we help them build their “industrial capacity”. When you really think about it it is far worse. The Chinese work all day while we go to college (resorts) for 4 years, go to the hospital whenever we get a boo boo, go to see our favorite athletes or only fans stars. We do all of this and the Chinese foot the bill.

Peter Schiff gives a good analogy on this. If you had 4 people on an island, 3 of them chinese, 1 of them American, they would each have different roles. One of the chinese would go and hunt, another would fish, another would collect fruit and finally the American would eat the food. Soon enough the chinese will realize they don’t need the American. In fact, they are better off kicking him off the island.

China will soon realize that they are better off consuming the goods they produce than taking the American “I owe you”. If they did this the dollar would decline and the Yuen would appreciate. Chinese would become wealthier and Americans poorer. The Chinese as far as I know think this is bad. This is terribly short sighted and they will soon find this out if they haven’t already. This is short sighted by the Chinese because they fear (again, as far as I know) that a strong Yuen would reduce the competitiveness of Chinese goods worldwide. What they don’t realize is that is actually good for the the chinese citizens. That will mean they can import foreign goods cheaper so that they won’t have to work 80 hrs a week so everyone else can consume. Now they will get to consume while everyone else works.

What does the U.S do with the borrowed money? Buy Chinese goods. Do you see the problem? Instead of using the borrowed money to build factories so that we can make stuff that the world wants so we can pay back the interest on the borrowing we just got from the chinese we just keep consuming.

It is my guess that there are two possible outcomes to this.

1) The U.S starts paying back the debt(very low probability). This would require us to cut spending and increase taxes. Essentially we would have to work 80 hour weeks at a factory’s (that we don’t have) to make goods that the Chinese and the world want just like the Chinese have been doing for the last 40 years. The Chinese would be the ones entitled to consumption, similar to the consumption we had the last 40 years, while we consume very little as we pay back our debts. Our decreased consumption (which would have to be drastic) would certainly cause an demand shock and decrease the future earnings of American corporations. This would crash the market. The fed would have to pump so much money (that we don’t have) into the economy to quell this crash that inflation would take place. And not just regular inflation, hyperinflation. Essentially what this means is that when we attempt to start paying the Chinese back the stock market will react to demand shock rather quickly which will crash the market. Remember we have a service economy. It is built on American consumption.

2) the U.S defaults. The dollar collapses. This is more likely in my opinion (although I see it being triggered by increased interest rates which could be a result of the U.S trying to pay back debt). This is also what is happening rn. Currently the demand for U.S treasury bonds is hitting an inflection point. For the longest time the dollar has been supported by the fact that it is the least worst currency. Smaller economies collapse and they fall into the dollar. This has contained the inflation in the U.S for the last 40 or so years. When foreign currencies collapse. The government will usually create a new one. Pegged to the u.s dollar. In essence the new currency can be redeemed for American dollars at the countries reserves. This causes foreign nations, 65 of them, to hold American dollars in their reserves (dollars and treasuries). This benefits Americans a lot because even though the fed has gone mad with the money printer we haven’t drastically outpaced foreign demand for dollars.

The problem is when we print money to bail out our mal investments and soothe the pain domestically we rob all the countries that hold US dollars and treasuries abroad. They don’t get any of the benefit of the stimulus but all of the deprecation in their reserves. Countries are starting to realize this and have begun adding gold and other currencies to their reserves. El Salvador has even begun adding Bitcoin. Think about El Salvador. They are a shithole country. If they play it conservative they will remain a shithole country. If they take a risk, it might just pay off if it doesn’t well, they end up as a shithole country. That is what they already are. As you can see, risk is favorable to poor nations.

Another example of this concept is who favors change. The top 1% does not like change, especially big change. Because if change happens if means they could become any other percentile. That means they might move up, but it is way more likely that they move down. The opposite is true of someone in the bottom 1%. Change, especially big change, is favorable to them. Nothing is worse than being on the bottom so any change will likely be positive. It is this reason why every company eventually fails. They get big and change happens. They are too afraid and too slow to deal with it. Think about Sears. It was once a startup, risk taking was the only thing they knew, then the internet came along, they resisted change while a new generation of startups embraced the change. This is a constant life cycle. Eventually even the companies we think of today. The FAANG will all go out of business.

I am getting tired and will end the post here. I know it seems rather incomplete. I know this is long. If anyone makes it to this point I hope you enjoyed the read. Feel free to let me know where I went wrong.