The Lord’s Portfolio

Feudal Arbitrage

In October, I laid out why the U.S. must pursue financial repression—inflating away debt just as it did from 1946 to 1981, because defaulting is political suicide and raising rates would trigger a debt death spiral at ~120% debt-to-GDP. That analysis was correct but missed the accelerant: AI and robotics are driving production costs toward zero at the exact moment the system must print money to survive. This collision doesn’t just create inflation—it creates a class bifurcation between those who own the deflation machines and those who compete with them.

Consider this: your television is 50% cheaper than it was ten years ago, yet your rent is double. Your phone can do the work of a $10,000 computer from 2005, but your grocery bill has never been higher. Technology is making production cheaper and yet cost of living marches higher. Why?

On one side, AI and robotics are driving the cost of production toward zero. This is deflation. On the other side: $346 trillion in global debt - over 300% of GDP - which requires rising prices and increasing amounts of credit to remain serviceable. This is the inflation imperative.

One of these forces is exponential, and the other is desperate. The system has already made its choice, because it’s the only feasible option: print money faster than technology drops prices.

One Person’s Debt is another Person’s Asset

The debt trap is mathematical. If technology drives consumer prices down 3% annually, nominal GDP contracts. Tax revenues fall and Debt-to-GDP explodes. Central Banks cannot allow this, so they print money, injecting enough new money to offset the deflationary pressure of technology, ensure nominal incomes grow faster than debt service costs, and keep asset prices inflated. This isn’t stimulus, but system maintenance.

But the trap goes deeper: one person’s debt is another person’s asset. The $346 trillion in global debt sits on someone’s balance sheet as an asset—pension funds, insurance companies, sovereign wealth funds, retirees. If deflation and AI-related job displacement reduce nominal prices and incomes, borrowers cannot repay. When borrowers default, lenders become insolvent, banks collapse, and pension funds evaporate. The entire financial system is a web of interconnected IOUs.

This is why Central Banks cannot allow debt levels to shrink, even as technology drives real costs closer to zero. The system must generate enough inflation to keep the nominal value of debts, since overall, debts = assets. The alternative is cascading defaults that wipe out the assets backing the entire financial system.

The result: abundant goods made by robots get cheaper (e.g. TVs). Scarce goods resistant to automation get more expensive (e.g. gold, beef). Wages rise in nominal terms but fall in purchasing power. Asset prices rise in dollars but decrease when denominated in gold.

Technological Feudalism

In the industrial era, wealth came from owning factories. In the digital era, it came from owning platforms. In the coming era, it will come from owning the means of automation and the stores of values. The economy splits into two groups.

The lords own the robots, the inputs to energy, and the hard assets. They capture productivity gains and hedge against inevitable dollar debasement.

The serfs sell their time, hold cash, rely on wages. They compete against AI and robots that work 24/7 and never take a lunch break.

We’re likely to see the state provide stimulus to the serfs by way of Universal Basic Income funded by printed money. This keeps consumption alive while labor income collapses and white-collar workers pivot to new fields that require new skillsets, which takes a period of years.

The bifurcation is already underway. The question is which side of the moat you position yourself on. To position oneself as a lord, build a portfolio like you are managing a kingdom under siege. The castle is built on four pillars, each serving a specific function in the coming regime.

The Four Pillars

Pillar 1: The Treasury (Sovereignty)

Gold and Bitcoin serve as protection from debasement. Gold is the analog reserve – proof -of-work in physical form. Mining gold requires energy expenditure that cannot be faked. Central banks are buying gold at rates well above historical norms. They are swapping Financial Ledger promises (U.S. Treasuries) for Material Ledger collateral (gold).

Bitcoin is the digital reserve. Fixed supply of 21 million, secured by thermodynamics. When the system prints money to fight deflation, that money flows into scarce assets. Bitcoin and gold are the sponges that absorb the excess dollars.

Pillar 2: The Production (The Deflation Machine)

Robotics and artificial intelligence solutions capture the productivity boost. As wages rise nominally due to inflation, the ROI on replacing a human with a robot or AI agent goes vertical. You do not want to be that worker, but you do want to own the machine that replaces the worker.

The companies building industrial robots, AI agents, and factory nervous systems are capturing the wealth that used to flow to labor. They are the cause of the deflation. Owning them means you profit from the force the Central Bank is fighting. This is the ultimate arbitrage: own the thing creating the deflation (which then causes the government to print money), then capture that printed money through hard assets like gold and bitcoin.

Pillar 3: The Castle Walls (Army & Defense)

Autonomous defense systems—AI warfare platforms, drone production, precision munitions—capture the State’s survival bid. Wars are now fought autonomously via drones, satellites, and long-range missiles.

Recently, U.S. interest expense surpassed defense spending for the first time. As debt service consumes the budget, defense dollars must buy maximum lethality per dollar. That means robots, not personnel. As the world’s geopolitical order is reshuffled, defense budgets continue increasing.

The U.S. military is made in China, who controls 98% of rare earth processing and 70% of refining capacity for 19 out of 20 strategic minerals. We cannot credibly threaten force to maintain dollar hegemony against the nation supplying our weapons components, which means we’ll work to rebuild our defense supply chains – a process that requires 10-20 years for mining capacity and trillions in capital. Defense contractors employing automation become primary beneficiaries of this multi-decade defense spending wave.

Pillar 4: The Fuel (Critical Atoms)

Energy producers (uranium, natural gas) and critical materials (copper, silver, rare earths) own the bottleneck. You cannot print a watt of energy nor a pound of copper; the AI buildout and the re-industrialization waves require scarce physical inputs that will be in high demand and short supply.

While the Fed can print money instantly, geology moves slowly. As the Financial Ledger expands to infinity, the Material Ledger (atoms & energy) must re-rate upward to match.

Building the Castle

To defend a kingdom, the ruler must secure four critical pillars:

• The Treasury (gold and bitcoin)

• The Production (automation, industrial robotics, and AI-systems)

• The Castle Walls & Army (autonomous defense systems)

• The Fuel (energy and critical materials)

A ruler managing a realm under siege understands that the four pillars are not independent allocations. They are mutually reinforcing defenses. The Treasury funds the Production. The Production generates wealth to expand the territory and walls. The walls and army secure the realm so Production can operate without external threat. The Fuel powers the Production and Army and keeps the realm functioning. Lose any one pillar, and the entire structure is vulnerable.

A ruler with gold but no army gets conquered. A ruler with an army but no fuel cannot march—their troops starve. A ruler with fuel but no production cannot build. A ruler with production but no treasury cannot weather shocks—one bad harvest, and the realm collapses. The castle stands on all four pillars or none.

Secure all four pillars, or risk losing to those who did.

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