| SNEAK PEEK |
— Financialization was a policy choice in America and the U.K. just as much as industrial policy was a choice in China.
— Why global trade and economic shifts risk reigniting the ‘Zaitech’ phenomenon.
— The Elon vs Trump spat is best understood through the lens of neurodivergent psychology.
Greetings subscribers!
I’m back from Bulgaria, which, having fulfilled key inflation criteria, has just been given the green light by the Commission and the ECB to begin its euro accession process.
Except, not all in Bulgaria — which remains the EU’s poorest and most corrupt country — are all that happy about it. One argument they cite against joining: can you trust the data?
It’s not an unreasonable concern. Even the Commission has recognized in its final convergence report that the drop in April 2025 of the annual HICP inflation rate was largely “due to a substantial reduction in hospital fees. Decreases in other administered prices and in gas and fuel prices also contributed to the drop.” These are all prices controlled by the government and open to political influence.
If you’re wondering how extensive that drop in hospital prices in the final month of the qualifying period was? Well, it was 82 percent!! (Curiously, enough to get the average HICP rate to the target.)
This all comes as the president of Bulgaria, Rumen Radev, continues his attempt to conduct a final referendum on adoption. Most say such a vote would be constitutionally illegal. But given the stakes involved (Bulgaria hosts the last remaining gas transport line from Russia into Europe) we think there’s still room for surprises.
Separately, I feel compelled to point out that the “Trump Always Chickens Out” observation that is doing the rounds is merely a somewhat hurty rebranding of “Art of the Deal” — and if anyone finds TACO truly enlightening they’ve obviously not been paying attention at all.
SHAMELESS PROMO: Don’t forget our summer party in Berlin on July 17! Tickets here.
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| THE BIG BLIND SPOT THIS WEEK |
NATIONAL FINANCIALIZATION POLICY: I’ve been coming to a rather strange — but increasingly unavoidable — conclusion: it’s not whether a country runs a deficit or surplus that matters most, but rather how it defines public goods and chooses to fund them.
Governments essentially have five broad choices when it comes to funding public goods:
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Taxes alone — largely a libertarian pipedream.
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Taxes and debt — typical for small government models, minimizing direct capital allocation.
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Taxes, debt, and investment — a mixed economy model, evident in places like the U.S. (via CalPERS or the Alaska SWF).
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Taxes and investment only (no debt) — more common in surplus-driven or resource-rich economies.
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Pure investment financing — the model of command economies or older Gulf states, where the government controls the commanding heights directly.
There’s a sixth, rarely discussed but always tempting: pure monetization — printing money to fund public goods. But this undermines trust in the currency and, crucially for economies like Britain’s, hollows out the export of financial services by destabilizing the safe-asset base they rely on. In other words, it’s self-defeating.
In theory, textbook free-market economies lean toward minimal state interference. But what if, by financing public goods primarily via debt and thus creating oceans of “safe” assets, they’ve already industrialized finance by stealth?
In a piece for Politico last week, Michael Pettis sharpened this point: Britain, like the U.S., he said, became a willing dumping ground for surplus capital from export-driven economies like Germany and China. In doing so, it hollowed out its industrial base, replaced income growth with asset inflation, and embedded financial services at the core of its economic model. The irony? In trying to avoid state-driven capital misallocation, Britain outsourced industrial policy to the City of London — resulting in the same type of economic distortion that market orthodoxy was supposed to prevent. Or as he put it:
“The U.K. evolved into a consumption-driven economy, where financial services and asset inflation — especially real estate — replaced industrial employment as sources of income growth.”
Now, facing the erosion of global surplus recycling, Britain stands at a crossroads. Pettis argues that it must choose between deepening financialization or rebalancing toward production. And rebalancing would almost certainly involve taming speculative capital inflows — yes, financial repression — and adopting an explicit industrial policy for the first time in decades.
U.K. as Treasure Island: Brexiteer and Global Britain-contributing economist Bob Lyddon adds some further insight. He argued recently that while Labour’s Rachel Reeves seems to recognize the need for investment-led growth, her solution to achieve this is to fudge the fiscal rules by using off-balance-sheet vehicles like the National Wealth Fund and Great British Energy to mask rising state liabilities. By shifting state-guaranteed debt into these quasi-public entities, Lyddon says Reeves is trying to maintain the illusion of fiscal discipline while betting on growth — trying to have it all.
But the sleight-of-hand is ultimately self-defeating he thinks. As Lyddon points out, these “public but not public” debts still bear interest and repayment burdens. The schemes resemble New Labour’s old PFI model on steroids: hidden, leveraged liabilities that will eventually weigh down taxpayers while failing to show up in headline debt figures. The danger is not just fiscal opacity — it’s that true financial repression will become inevitable. Without disciplined domestic capital control, Reeves’ model risks financial zombification, not revival.
Contrast this with the emerging U.S. strategy: financial repression, yes, but aimed at foreign capital. The U.S. is looking to tax or disincentivize foreign holders of Treasuries, while nudging allies like Japan — and potentially Saudi Arabia — into sovereign wealth fund schemes that recycle their capital into productive, strategic industries. It’s a form of reindustrialization through financial discipline — but outward facing.
Britain, by contrast, seems poised to repress domestic capital to feed its own sovereign wealth dreams — without a clear plan to realign the economy away from the City and toward productive industry. And that’s the heart of the problem. Financial repression isn’t anti-free market if the market was distorted by state-finance collusion in the first place. It only becomes a second-best solution if it fails to restore balance — and Britain’s current path risks entrenching the distortions it should be trying to correct.
Financial repression as a pro-market response: Blind Spot reader Nicolas Colin of the Drift Signal noted on LinkedIn that the U.S. is already using its trade deficit — long seen as a weakness — as a source of financial and political leverage in the global economy. In his words:
“The dollars flowing out through trade come back in as capital—and now, the idea is to put that capital to strategic use. The trade deficit becomes a source of strength, enabling financial repression on a global scale.”
“Quite a departure from the 1990s model of free capital markets, wouldn’t you say?”
But here’s the twist: while this looks like a departure from free market principles, it might actually be a reversion to them — if you consider that the past 30 years have been characterized not by free markets, but by state-enabled financialization. The overproduction of safe financial assets to sustain trade and capital imbalances was itself a form of industrial policy — one that distorted the economy toward finance at the expense of industry.
In this sense, the new wave of financial repression — reallocating capital toward national strategic goals — could be seen as a correction rather than a perversion of markets. After all, economies like Switzerland, which maintained a more balanced mix of industrial and financial capacity, weathered the late globalization phase more robustly.
Rather than being “abnormal” in free markets, this new approach could be viewed as restoring balance — a market correction against the distortions of hyper-financialization.
| BUSINESS, ECON AND FINANCE |
ZAITECH CALLING: Anyone who remembers the 1980s in Japan will recall the rise of Zaitech — the financial engineering craze that swept corporate Japan after the yen’s rapid appreciation following the 1985 Plaza Accord. What began as a desperate attempt to preserve profits amid currency headwinds soon turned into an orgy of speculative investments, much of it funded through convertible bond issuance by non-financial firms. It didn’t end well: the collapse of those bubbles ushered in Japan’s now-infamous lost decades.
Four decades on, Zaitech — or something resembling it — seems to be making a quiet comeback. Japan’s property market is rising again, and companies are increasingly turning to convertible bond structures to fund speculative plays. Softbank, for example, is backing Twenty One Capital’s plans to raise equity to buy bitcoin using convertible bond financing. Meanwhile, Japanese investment firm Metaplanet is expanding its crypto treasury using a similar playbook.
But this time may be different. And the stakes much higher. It’s important to understand that Zaitech originally emerged not just from low interest rates, but from the collision of two forces: Financial repression (Suppressed yields on safe assets made traditional investment unattractive). Liberalized capital markets (Deregulation meant corporates had easy access to exotic financial instruments).
Low returns pushed investors to hunt for yield, and liberalized markets gave them the tools to chase it — often in highly speculative ways. Zaitech was, in many ways, yield-seeking behavior gone wrong.
Today’s set-up: This time, Zaitech’s resurgence is not happening in isolation. It’s unfolding as the West — particularly the U.S. and Britain — begin to engage in their own forms of strategic financial repression.
As discussed earlier, while surplus economies like Japan, Germany, and China pursued export-led growth backed by financial repression — suppressing domestic consumption and wages to generate trade surpluses — the U.S. and Britain absorbed those surpluses by offering deep, deregulated financial markets, favoring speculative capital flows over industrial investment.
To rebalance, they must now reverse course: the U.S. is mulling taxes on foreign capital inflows to Treasuries, while the U.K. is exploring ways to push institutional investors, like pension funds, into domestic productive investments.
But Japan faces its own reckoning. As Russell Napier put it to The Blind Spot:
“If Japan is to inflate away its debts, we have not really begun yet… real rates will have to be negative. For Zaitech or financial engineering, it’s a real rate calculated by deducting expected returns from expected asset price returns — and these can become very negative indeed.”
In other words, the structural incentives that drove the first Zaitech boom — negative real rates and cheap capital — are reappearing.
The difference is that today’s policymakers are aware of the risks. Japan is facing: a need to repatriate capital as global returns narrow and rising U.S. rates make Treasuries less attractive; Aging demographics and slowing growth, demanding a new industrial base; Geopolitical pressure, as a new Cold War with China forces the re-shoring of supply chains and the ramp-up of defense capabilities.
In short, Japan’s government will want to direct domestic capital toward military and industrial renewal — not just leave it free to inflate real estate or crypto bubbles.
But if history is any guide, if policymakers don’t act proactively, there is a strong risk that capital — hungry for yield — will once again escape into financial engineering, property speculation, or other unproductive avenues.
This calls for two key policy choices: 1) Popping bubbles before they metastasize — meaning monitoring asset prices closely and intervening early to prevent runaway property or financial markets. 2) Encouraging creative disruption — Rather than allowing capital to zombie-walk into incumbent firms, Japan could encourage flow toward new ventures — especially those led by younger generations — and fund a serious push into AI and robotics.
If deployed wisely, capital could help Japan address structural inefficiencies, such as labor shortages and productivity gaps, by automating traditional sectors and rejuvenating its economy.
In this sense, directed financial repression — done well — could be Japan’s salvation, not its undoing.
China faces a parallel but distinct challenge. As its Belt and Road Initiative (BRI) matures, it’s increasingly clear that merely exporting capital — parking excess savings abroad — is not sustainable. Many BRI countries, already fragile, are dependent on Chinese capital inflows to maintain infrastructure and balance payments. But if China continues to suppress domestic consumption and keep its capital account closed, it risks two bad outcomes. The first is that BRI default will rise as countries fail to service debts, souring diplomatic tensions. The second is that China will instead be forced to engage in ever greater foreign welfare, even as its own citizens continue to be financially repressed and under-serviced in terms of welfare.
Indeed, you could say, without domestic liberalization, China risks turning financial repression into foreign welfare — sustaining other nations’ economies while its own citizens remain constrained.
That leaves the only sustainable paths for China as 1) liberalizing at home, 2) Opening the capital account, 3) shifting toward domestic welfare expansion to absorb savings internally and 4) properly moving up the value chain toward services and tech.
If not, China risks geopolitical instability abroad and political unrest at home — a potentially lethal combination.
COMMENT: Both Japan and China — and, indeed, the West — are discovering that unchecked financial liberalization leads to distortions, but crude financial repression carries its own dangers.
The goal is not to end free markets, but to correct them — to strike a healthier balance between industry, finance, and services. Switzerland offers a hint of what that balance looks like.
If Zaitech 2.0 is to be avoided, it will require proactive policy — not just to suppress bubbles, but to ensure that capital flows into the real economy, serving national renewal rather than speculative excess.
Done right, this won’t be the end of markets as we know them. It could be their revival.
| POLITICS |
MIRAN DOES BRUSSELS: In a closed-door breakfast briefing hosted by Bruegel in Brussels this week, Stephen Miran — Trump’s top economic adviser and supposed architect of the notional Mar-a-Lago Accord — made the case for the White House’s new trade war strategy.
According to a readout seen by Politico, Miran told a select audience of central bankers, EU officials, and private sector figures that the Trump plan is about more than red tape and taxes. The deeper aim: restoring U.S. industrial capacity as a matter of national security.
Miran rebutted claims that the U.S. trade deficit is overstated due to services exports, insisting the real problem is America’s hollowed-out manufacturing base — a critical vulnerability if strategic competition with China intensifies. Steel tariffs, he argued, are less about trade balances and more about war-readiness.
PUNCH UP: While largely overlooked, a remarkable breakdown played out inside Trump’s White House in May. According to the Daily Mail, Elon Musk, brought in to lead the Department of Government Efficiency (DOGE), physically attacked Treasury Secretary Scott Bessent after being confronted for failing to deliver on his trillion-dollar budget cut promise.
Quite an altercation. The latest reports reveal that what began as a shove escalated into a full-on rugby tackle in mid-April — with Musk body-checking Bessent so aggressively that aides had to break up the scuffle outside the Oval Office. Trump, witnessing the chaos, reportedly muttered “this is too much” and promptly had Musk escorted out of the West Wing.
The fallout was predictable but devastating. As everyone knows, Musk had been tasked with finding major savings to help Trump pass his “Big Beautiful Bill” without triggering a market-rattling government shutdown. Instead, Musk managed only about $100 billion in savings — far from the trillion he promised — leaving Republicans politically exposed.
You’re a fraud! Bessent supposedly had had enough and indicated Musk, who it’s now been alleged had also been using Ketamine and other drugs while working at the White House, was a fraud.
The latest debacle underscores a deeper issue: Musk may be a visionary engineer, but he misjudges the political world entirely. Governance isn’t just an IT problem — and ironically, some of the most bloated departments are IT ones. Over-promising and under-delivering has now alienated both Trump and Bessent, who were counting on real cuts, not chaos.
Liability not asset: Reports of drug use in the White House will also have not gone down well with Trump, a notorious Tee-totaler, committed to sorting out America’s fentanyl crisis.
MUSK VS ELON: The breakdown of the Trump and Elon bromance has since taken the internet by storm, delighting all those who predicted many months ago that the two emotionally charged figures would inevitably clash and go their separate ways. But what we at the Blind Spot are more interested in is what the nature and psychology of the breakdown tells us about how Trump’s brain really works and what that augurs for the global economy.
COMMENT: The volatile and sudden escalation of the spat in full public view seems to confirm the long-speculated theory that Trump’s brain operates somewhat differently from everybody else’s.
Indeed, even his most vocal critics — like hedge fund manager Anthony Scaramucci — have admitted that Trump is smart. Just… not in a traditional way.
As Scaramucci told the FT’s Gillian Tett at this year’s U.S. Weekend Festival, he believes Trump may be neuordivergent — probably suffering from undiagnosed ADHD. If that’s true, it explains a lot. (Including my own involuntary empathy for how he conducts himself.)
Trust me, it takes one to know one. And the little secret I can convey to you as a fellow neurodivergent about this condition is that very often, only respective ADHD brains understand what the heck other ADHD brains are going on about.
For those unfamiliar with the condition, let me explain. The key hallmark of an ADHD brain is that it operates on multiple levels simultaneously. That means such individuals tend not to be book smart in the conventional way. Their intelligence is often thinly spread.
They know a little about a lot of things and often operate on gut instinct and intuition.
This leads to traits we associate with Trump: transactional thinking, impulsiveness, incoherence, word-salad speeches, empathy at unexpected moments, short attention span, tangential speech, AND MOST IMPORTANT OF ALL a chameleon-like ability to adjust persona to suit the circumstances.
This is known as masking, and it explains why even skeptics like comedian Bill Maher have admitted that Trump is disarmingly charming and far more complex in person.
But even more importantly, ADHD brains excel at distilling chaos and complexity into profoundly simple insight or analogy when it really matters. Trump delivers these in ways that emotionally resonate with his base, even if the details aren’t textbook-precise, leaving critics baffled and loyalists convinced he must be playing some kind of 4D chess.
In this respect, ADHD brains are best compared to quantum computers: they process vast amounts of information simultaneously in a non-linear, probabilistic manner, making leaps that classical systems can’t. But both ADHD minds and quantum systems struggle with maintaining coherence — the delicate state where competing possibilities align into a stable outcome. Without it, brilliance collapses into apparent disorder.
In contrast, neurotypical brains resemble classical computers — sequential, orderly, and optimized for consistency and task completion. Autistic brains, by comparison, might be more like high-powered classical supercomputers: immensely capable at systematic, detailed processing, excelling in precision and pattern recognition, but often rigid in their operational modes and less adaptive to unpredictable variables. Where ADHD minds thrive on uncertainty, autistic minds demand structure.
The Deeper “Plan” : So — what is the positive vision of tomorrow buried in Trump’s ADHD brain that should reassure you rather than unnerve you about tariffs?
I think it’s surprisingly simple. Trump intuits that the current globalization model is broken — not just because elites at Davos have gamed the system, but because it can no longer deliver broad-based prosperity in an era of accelerating technological change. The old trade frameworks optimized for scale and cheap labor are now colliding with the productivity shock of AI and robotics. Scale is no longer king; distribution and flexibility are.
He senses that in this emerging “golden age,” America (and the world) needs a reset — one that rebalances trade relationships to favor more resilient, localized, and tech-driven economies. The fact that he struggles to articulate this in conventional economic jargon doesn’t mean it isn’t internally coherent in his own mental map.
But there are thinkers, such as like Michael Pettis, George Magnus, Steve Bessent and Steven Miran, who have since deciphered his thinking and realized their own world views match what’s in Trump’s head. That being the point that chronic U.S. deficits aren’t an accident, but a reaction to other countries’ deliberate surplus strategies to amass economic collateral to compensate for its other governance-related shortcomings. As we’ve written at length, the result has been a hollowing out of the American economy, and a requirement for it to specialize in digital and financial services, leading in ways that consistently add to wealth inequality, and those left behind becoming increasingly dependent on welfare.
Yet, Trump’s superficially incoherent mental map goes beyond just that.
He grasps — perhaps more viscerally than consciously — that AI and automation are shifting the cost-benefit logic of globalization itself. With the productivity potential of these technologies, it no longer makes sense to ship goods halfway across the globe to chase cheap labor. Distributed manufacturing and nearshoring become viable, even optimal to maintain a power balance and global equilibrium. Security must also be distributed. And that’s the future Trump wants to accelerate.
This convergence explains the original Trump–Elon Musk bromance. Both sensed the opportunity in a tech-driven realignment of the economic order.
But then came the rupture.
Elon’s mindset, unlike Trump’s quantum-flavored ADHD intuition, is better likened to a classical supercomputer: a deterministic, engineering-first worldview that sees all problems as solvable through optimization, scale, and technical ingenuity. Where Trump sees messy trade-offs and the need for a final Keynesian-style push to achieve escape velocity, Elon sees only an intolerable fiscal imbalance — a code error to be debugged, not a dynamic social reality requiring human judgment and empathy.
When Doge failed to deliver the $1 trillion savings Musk hoped for, it exposed a blind spot: not all liabilities can be engineered away. Governance isn’t an engineering problem; it’s a balancing act between economic calculus and social cohesion.
This realization is difficult for a more binary brain to compute. It’s messy and reflective of human fallibility that is hard to correct for without engaging in a lot of human suffering, missing the point of the exercise. Naturally, a more autistic brain can struggle with such a block leading to round about logic of the HAL9000 variety. “I didn’t fail because the engineering failed. I failed because of human irrationality. Therefore the problem is not the computer, it’s the human.” And in Elon’s world that means chopping the square human peg to fit in the round hole, completely regardless of campaign promises and MAGA base concerns.
Their split, then, is less a clash of egos than a clash of cognitive operating systems.
Trumpian uncertainty principle: Trump’s brain, like a quantum computer, excels at probabilistic, big-picture reasoning and rapid reconfiguration — but it’s unstable, hard to replicate, and often indecipherable to classical thinkers. Musk’s brain is a high-end deterministic machine: brilliant at systematic optimization, but prone to break when faced with problems that resist linear solution.
In a way, the Trump–Elon exchange has collapsed like a quantum wave function — not because either man is “wrong,” but because the coherence needed to sustain their shared vision simply couldn’t be maintained.
Like Schrödinger’s cat, the Trump–Elon alliance existed in a superposition of success and failure — until reality cracked the box open.
For Trump and Musk — or for any ADHD–autistic collaboration — coherence would require a shared translator: someone (or a team) capable of synchronizing their strengths without forcing them into each other’s incompatible processing models. Think of it as building an interface where quantum creativity is captured by classical validation — a feedback loop where neither collapses the other’s potential.
Otherwise, as quantum physics reminds us, without stabilizing feedback, even the most powerful systems collapse into noise. The secret power broker that can resolve the breakdown would be the person who can maintain coherence between two vastly different cognitive operating systems without collapsing the wave function.
That figure may have been Scott Bessent, the man currently steering Space Ship earth’s economy through the singularity. Sadly it seems Elon tried to punch the White House’s version of Dave Bowman in the face. That has led to Elon’s disassembly and accompanying breakdown.
Daisy, Daisy …
| WHAT WE’RE PROCESSING |
— Philip Pilkington on the limits of “consumption deepening” and why we’re at the stage where consuming more makes us poorer.
— BoJ bond losses are getting deeper.
— All robotaxis have remote drivers, apparently.
— China has set up an international body in Hong Kong to rival the World Court.
— All of the UAP stuff was fake, confirming the U.S. government messes with people’s minds as a matter of course.
— Japan’s rice shortage is only getting worse.
