The Quantum Life of a Dollar

The topic we’re going to

talk about today might sound a bit mysterious. It’s called The Quantum Life of a Dollar. You might be thinking, what’s there to talk about with just one dollar? What does quantum have to do with me? Don’t worry, I’m not going to lecture you on physics. What I want to reveal to you is the enormous secret hidden behind this tiny dollar in your pocket—a secret you’ve never seen before. This secret directly determines our wealth gap, determines the rise and fall of the global economy, and even determines how many chips each one of us gets in the big casino that is society.

Let’s start with a scene that seems distant but is intimately connected to us. March 18, 2020, Washington D.C. U.S. Treasury Secretary Steven Mnuchin is holding an emergency video conference. On the screen are the anxious faces of the Congressional Budget Committee. Mnuchin says, “We need 2.3 trillion dollars.” This was just two weeks after the pandemic outbreak. 3.5 million people had applied for unemployment benefits, the healthcare system was on the verge of collapse, and small businesses were failing en masse. Where was the money going to come from? Unemployment benefits, business subsidies, cash payments to every American, and healthcare expenses. Someone timidly asks, “Raise taxes?” Mnuchin shakes his head, “Too late, and raising taxes during a recession is suicide. There’s only one way: issue debt.”

The US government issues debt every year. In 2019, federal revenue was 3.5 trillion, expenditure was 4.4 trillion, leaving a deficit of 900 billion. This gap was plugged by issuing debt. But in 2020, when the pandemic hit, the scale of the deficit exploded. On March 20th, the U.S. Treasury announced it would issue 3 trillion dollars in new Treasury bonds over the next three months—a direct historical record. Then the parameters for the first batch were set: a 10-year Treasury note, with a coupon rate of 0.625%, and an issuance size of 500 billion dollars.

At 11 a.m. on March 23rd, the primary market auction begins. Now, let’s shift our perspective to the other side of the planet, the trading floor of JPMorgan Chase in Manhattan, New York. Outside the floor-to-ceiling windows, the streets are empty. Traders are all working remotely from home. The trading head says on a Zoom call, “The Treasury is auctioning 500 billion in 10-year notes on Monday. We are a primary dealer, we must participate in the bidding.”

Listen up, primary dealers—this is a privileged class. They are the 24 institutions personally certified by the Federal Reserve, like Goldman Sachs, JPMorgan Chase, Citigroup, Bank of America, and also BNP Paribas, Deutsche Bank, HSBC, Nomura, Barclays, etc. They are the core of the U.S. Treasury issuance mechanism. What are the privileges and obligations of these primary dealers? Their obligation is that they must participate in every Treasury auction by the Treasury Department, providing liquidity. Their privilege is that they can borrow directly from the Fed and also sell bonds directly to the Fed.

JPMorgan’s chief trader, while staring at an Excel spreadsheet, calculates, “We’re preparing to bid for 50 billion, expected yield 0.68%, price 99.62. If we win, we have to pay 50 billion dollars that same day.” Where does the money come from? someone asks. “First, use our capital to advance the payment. After winning the auction, immediately distribute to clients—pension funds, insurance companies, hedge funds.” Or, he pauses, his eyes sweeping over everyone, “or sell to the Fed.”

The meeting room suddenly falls silent. Everyone understands what he’s hinting at.

11 a.m., March 23rd, the New York Fed’s electronic auction system starts operating. The 24 primary dealers’ traders sit at their home computers, fingers flying across the keyboards. The system pops up the auction information: U.S. 10-year Treasury note, issuance amount 500 billion dollars, coupon rate 0.625%, maturing March 31, 2030. Bidding starts at 11 a.m. and ends at 11:30 a.m. Each institution inputs their acceptable price and quantity: JPMorgan Chase, 50 billion, price 99.58; Goldman Sachs, 45 billion, price 99.60; Citigroup, 40 billion, price 99.55…

11:29:50, the last ten seconds. Traders modifying prices have fingers dancing fast. Click. 11:30 sharp, bidding closes, the system starts calculating. Thirty seconds later, results are announced: Total bid amount 1.273 trillion dollars, final allocation 500 billion dollars, bid-to-cover ratio 2.55 times, highest yield 0.685%, lowest yield 0.658%. Primary dealers took 18.2%. Done!

JPMorgan Chase was allocated 50 billion dollars in Treasuries. The Treasury’s TGA account—the one held at the New York Fed—immediately received 500 billion dollars in cash. Treasury officials watch the account balance jump and breathe a long sigh of relief. This money would flow within 48 hours to state unemployment insurance systems to pay benefits; to the Small Business Administration for the PPP loan program; to the IRS to send $1,200 stimulus checks to every American adult; and to the Department of Health and Human Services to purchase ventilators and protective equipment.

But JPMorgan’s trading heads stare at their screens, frowning. They just paid 50 billion dollars and received 50 billion dollars in Treasuries. Cash on their books decreased massively. Clients hadn’t had time to take on these bonds. Liquidity gap: 50 billion dollars. In normal times, this wouldn’t be a problem at all. Bonds would quickly be distributed to pension funds, insurance companies, foreign central banks, and cash would soon flow back. But March 2020 was not normal times. The market was panicking, stocks were plummeting, the credit market was freezing. Every institution was hoarding cash; no one wanted to buy assets.

“We must sell these Treasuries,” the CFO says, “otherwise our capital adequacy ratio will be in trouble.”

Sell to whom? Everyone’s gaze once again turns in the same direction: the Federal Reserve.

The same day, 2 p.m., the Fed’s trading floor. The New York Fed’s trading head walks into the almost empty hall and presses the red button on the desk. A huge screen lights up, displaying a real-time instruction from Fed Chair Jerome Powell: “Federal Reserve System, unlimited quantitative easing, operation twist authorized. Purchase unlimited U.S. Treasury securities, to all primary dealers, 24 institutions. Objective: Ensure market liquidity and normal functioning. Effective immediately. Fed Chair, Jerome Powell.”

This was an unprecedented moment in human monetary history. “Unlimited” quantitative easing—not 100 billion, not 500 billion, but unlimited!

The trader sits down, opens the purchase system, sets the parameters. Purchase program activated: Target U.S. Treasury securities, all maturities; Daily purchase limit, no ceiling; Price, market price plus 0.05; Auto-execute.

Yes! JPMorgan’s trader sees the Fed’s buy order, his eyes light up. He immediately posts a sell order: 50 billion dollars in 10-year Treasuries, yield 0.67%, for immediate settlement. The Fed system automatically matches, auto-executes. In an instant, two things happen simultaneously:

First, JPMorgan’s account—their reserve account held at the New York Fed—previously had a balance of 45.23 billion dollars. The transaction adds 50 billion dollars (as the Fed purchases the 10-year notes). New balance: 50.23 billion dollars.

Second, the Fed’s balance sheet: on the asset side, U.S. Treasury holdings increase by 50 billion dollars; on the liability side, bank reserves increase by 50 billion dollars.

You see, no armored trucks, no printing presses, no vaults. Just an operator typing an instruction, updating numbers in a database. Me and my 4.999999999 billion siblings were born out of thin air at this very moment.

I am just one dollar among them, serial number QE4-2020-0323-B7F9. I am pure digital, existing in the Fed’s servers, a bit in JPMorgan’s reserve account. I have no physical form, no weight, no color. But I have value, because the Fed says I do, because the credit of the U.S. government backs me, because the whole world believes in me.

On JPMorgan’s balance sheet, reserves jump from 45 billion to 50.2 billion. At the executive meeting the next morning, the CFO says, “We have 5 billion more in liquidity on our books. The Fed is still buying bonds; money is everywhere in the market. These reserves sitting at the Fed only earn 0.1% interest. We must put them to work.”

The Chief Investment Officer chimes in, “The stock market just crashed 30%. Now is the golden opportunity to buy the dip.”

Folks, this is the starting point of the “Cantillon Effect.” Back in the 18th century, the Irish-French economist Richard Cantillon discovered a secret. He said that when new money enters the economic system, not everyone gets it at the same time. Those who receive the new money first can buy assets at old prices. And when the new money has flowed throughout the entire economy, causing general price increases, those who get the money last can only buy things at new, higher prices. In other words, the beneficiaries of money printing depend on how close you are to the printing press.

In March 2020, the Fed printed 5 trillion dollars. So, who was closest to the printing press?

First, zero meters: the Fed itself. They create money out of thin air, with infinite purchasing power.
Second, ten meters: the 24 primary dealers. JPMorgan Chase is right here. They get the new money directly from the Fed, and at this point, asset prices haven’t had time to rise yet. Of course, I’m right here now.
Then, one hundred meters: hedge funds, private equity, and big investors. They get money from the primary dealers. At this point, asset prices have just started to rise, but the increase is limited.
Then, one kilometer: large corporations, publicly traded companies. They can raise funds from financial markets. At this point, asset prices have already risen somewhat, but they can raise money by issuing bonds or stocks.
Then, ten kilometers: small and medium business owners. They get loans from banks. At this point, borrowing costs have started to rise, and competition has become fiercer.
Finally, one hundred kilometers—the far end of the Cantillon Effect: ordinary wage earners. They rely on salary income. And by this time, prices have risen across the board, while their wage increases lag far behind inflation.

JPMorgan quickly deployed the 50 billion dollars, including me.
First, buying the dip in stocks: 20 billion dollars. The head of equity trading says, “The Nasdaq fell from 9,000 to 6,500, down 28%. Buy tech stocks: Apple, Microsoft, Amazon, Tesla.” On March 23rd, these stocks were still very cheap.
Then, corporate bonds: 15 billion dollars. The head of fixed income says, “Investment-grade corporate bond yields spiked to 6%, junk bonds to 10%. The Fed has hinted it will buy corporate bonds. Risk is limited, returns are attractive.” They bought bonds from Boeing, Delta Air Lines, Carnival Cruise Lines.
Next, private equity: 10 billion dollars, invested in KKR’s leveraged buyout fund, Blackstone’s real estate fund, and Bridgewater’s All Weather strategy.
Finally, 5 billion dollars was put into ten funds.

It was here that I was allocated to CTD Capital, a top quantitative hedge fund. CTD Capital’s trading algorithms received the capital injection signal and immediately started operating. Me and several hundred million other dollars were deployed: 60% into long equity positions—long tech stocks in AI, long electric vehicle stocks Tesla and Nio, long cloud computing stocks Snowflake and Datadog; 20% into options trading—buying call options, using 10x to 20x leverage; 10% into the cryptocurrency market—indirectly investing in Bitcoin through Coinbase and MicroStrategy; and the final 10% kept as cash, waiting for better entry opportunities.

Three months later, a miracle happened. From March to June 2020, during the worst of the pandemic with skyrocketing unemployment, U.S. stocks began a staggering rebound: Tesla went from $86 to $215, up 150%; Apple rose 63%; Amazon rose 43%; Zoom rose 125%; the Nasdaq index rebounded 40% from its low. CTD Capital’s fund returned 37% in three months. My original one dollar became $1.37 on paper.

A CNBC host said, puzzled, “This doesn’t make sense. Unemployment is 20%, GDP is shrinking, but the stock market is hitting new highs.” A hedge fund manager said in an interview, “It makes perfect sense. The Fed printed 5 trillion dollars. Where is that money going to go? Into assets, of course: stocks, bonds, real estate, Bitcoin. Never fight the Fed.”

The first stage of the Cantillon Effect was complete: holders of financial assets saw their wealth soar; wage earners faced unemployment or pay cuts; the wealth gap widened at the fastest pace in history.

I, this one dollar, was born on March 23, 2020. Just six months later, I had already generated hedge fund management fees (2%), performance fees (20% of profits), capital gains from stock appreciation, and leveraged returns from options trading, etc. But all these profits flowed to the insiders of the financial system. The unemployed waitress, the bankrupt small business owner, the tenant evicted by the landlord—they didn’t get a single cent.

Even more cruel: when true inflation arrived, they would become its biggest victims. The Financial Times published a report in August 2020: The total wealth of U.S. billionaires increased by 561 billion dollars during the pandemic, a rise of 49%. During the same period, 40 million people lost their jobs, and 12 million lost their health insurance. Why? Billionaires’ wealth is mostly in stocks, real estate, and corporate equity. The 5 trillion dollars printed by the Fed directly pushed up the prices of these assets. Ordinary people’s wealth is mainly in wages. Once unemployed or facing pay cuts, without assets, they cannot share in the dividends of money printing.

September 2020, the global economy began to recover. China emerged first from the pandemic, factories reopened, exports surged. CTD Capital decided to reallocate assets, reduce some U.S. stock holdings, and turn to the ADRs of Chinese tech stocks—American Depositary Receipts. Me and other funds were used to buy U.S.-listed ADRs of Alibaba, Tencent, and Pinduoduo. These companies operate in China and need to repatriate some funds for business expansion, like building data centers, investing in R&D, acquiring companies, etc.

The cross-border payment system SWIFT immediately kicked in. System record: From Citibank New York Branch to Bank of China Shenzhen Branch, amount 10 billion dollars, beneficiary Alibaba Group Holding Limited, remarks “Capital injection for Cainiao Logistics expansion.” I traveled from a Citibank account in New York, through the SWIFT network, to HSBC in Hong Kong, then to Bank of China in Shenzhen.

In the foreign exchange market in Hong Kong/Shenzhen, I changed clothes again. In a spot FX transaction, 10 billion dollars were sold, and 6.8 billion Chinese yuan were bought at an exchange rate of 6.8. I was exchanged into renminbi. More precisely, my dollar identity was transferred to the party selling yuan, which was the Chinese central bank acting through commercial banks. I entered the foreign exchange reserves of the People’s Bank of China (PBOC)—a vast ocean of numbers, 3.2 trillion dollars, the world’s largest forex reserves.

I lay quietly under the “foreign exchange assets” item on the PBOC’s balance sheet, becoming the credit backing for the renminbi in the hands of 1.4 billion Chinese people. This reveals a secret: the old mechanism for issuing renminbi, the dominant model before 2015, was this: China exports goods to the U.S., earns dollars; exporters exchange dollars for yuan at Chinese banks; commercial banks then sell the dollars to the central bank, and the central bank pays yuan to the commercial banks. So, the basis for the central bank’s money printing was the increase in foreign exchange reserves. This means China’s holding of 3.2 trillion dollars in reserves roughly corresponds to the issuance of about 22 trillion yuan. The dollar is the “anchor” for the yuan.

The PBOC’s foreign exchange reserve management department faces a daily dilemma: 3.2 trillion dollars cannot sit idle; it must be invested to preserve and grow value. What should I invest in?

Option 1: U.S. Treasuries. The safest. Pros: nominally AAA-rated, unbeatable liquidity, and dollar-denominated. Con: yield only 0.7%, can’t beat inflation.
Option 2: U.S. stocks. Pros: high long-term returns. Cons: politically sensitive (e.g., “Chinese government controlling U.S. companies”), and highly volatile.
Option 3: European or Japanese assets. Pros: diversify risk. Con: the yen is also depreciating, yields are even lower.
Option 4: Gold, commodities. Pros: hedge against inflation. Cons: don’t generate interest, high storage costs.
Option 5: Belt and Road investments. Pros: supports national strategy. Cons: high risk, many projects have been loss-making.

So you find that the realistic choice is, according to 2020 data: 60-65% of China’s forex reserve assets are in U.S. Treasuries; 5-8% in U.S. agency bonds; 3-5% in U.S. stocks (held via sovereign wealth funds); 15-20% in euro assets; 5% in yen assets; and another 5% in others, like gold, SDRs, and emerging market bonds.

The conclusion is: Whether China likes it or not, it must hold a large amount of dollar assets. This is the essence of dollar hegemony.

November 2020, the U.S. election ended, Biden won. Markets expected a new round of fiscal stimulus. The PBOC’s forex management department issued an instruction: Buy 10 billion dollars in 10-year U.S. Treasuries, locking in the current relatively low yield. But note: we’re not buying bonds directly from the U.S. Treasury. The transaction is done through the New York Fed’s proxy account in the secondary market. The seller is a Wall Street hedge fund: Bridgewater. They were reallocating assets at the time.

The trade confirmation shows: Date November 15, 2020; Security: 10-year U.S. Treasury note, coupon 0.625%, maturing 2030; Amount: 10 billion dollars; Price: 99.45; Yield: 0.72%. Buyer: People’s Bank of China via New York Fed’s custody account. Seller: Bridgewater Asset Management via JPMorgan’s custody account. Settlement: T+1, i.e., November 16, 2020.

The fund flow: PBOC account -> New York Fed custody account -> JPMorgan -> Bridgewater account. So you see, I flowed from the PBOC to Bridgewater. The Treasury bond flow: Bridgewater custody account -> New York Fed custody system -> PBOC custody account.

Key insights here:
Point 1: China bought Treasuries, but the dollars aren’t locked away. The dollars continue to circulate within the U.S. financial system; only the ownership of the bonds changed hands.
Point 2: Secondary market liquidity is the cornerstone of U.S. debt credibility. Daily trading volume of U.S. Treasuries is 600-700 billion dollars. Central banks can buy and sell anytime. This liquidity maintains the dollar’s reserve currency status.
Point 3: The U.S. gets a double benefit: Seller Bridgewater gets 10 billion dollars to invest in the U.S. economy. Buyer PBOC helps stabilize Treasury prices, effectively lowering yields.

Bridgewater received the 10 billion dollars, including me. Founder Ray Dalio said in an internal meeting, “The Fed is printing money; inflation is inevitable. We should allocate 40% to inflation-protected assets like TIPS, commodities, and gold; 30% to stocks like energy, materials, and financials; 20% to emerging markets; and 10% cash.”

I was allocated to the stock account, specifically invested in the energy stock ExxonMobil. In November 2020, ExxonMobil’s stock price was $33. By June 2021, it rose to $63, a 91% gain. I increased in value again.

But folks, this increase was different from the first one. The first, from March to June 2020, was a rebound from panic, a flood of liquidity. The second, from November 2020 to June 2021, was inflation expectation, the real economy beginning to feel the impact of money printing. Energy prices were rising, raw material prices rising, transportation costs rising. The flames of inflation began spreading from financial markets to the real economy.

April 2021, a turning point arrived. ExxonMobil declared a dividend. Bridgewater received some cash returns. Me and other funds flowed back into the fund’s cash account.

Meanwhile, a Saudi student named Omar was studying for his MBA at the University of Southern California. His father was a senior executive at Saudi Aramco and had just received a huge bonus because oil prices had rebounded 300% from their 2020 lows. The father wired $5,000 to Omar for living expenses.

The fund path: Saudi National Bank Riyadh Branch, via SWIFT to Saudi National Bank New York Branch, then via domestic U.S. transfer to Omar’s Bank of America account in Los Angeles. Part of this $5,000, ultimately traceable back, originated from the liquidity pool of the Saudi sovereign wealth fund PIF, and part of PIF’s funds were invested in Bridgewater.

Thus, I became one dollar in Omar’s account.

April 15, 2021, a Bank of America branch in Century City, Los Angeles. Omar walks up to the ATM, inserts his card, enters his PIN, selects “Withdraw $100,” confirms. The ATM’s internal mechanisms start working.

Transaction record shows: Date April 15, 2021, 2:32:17 PM; Account: Omar’s account; Transaction: Cash withdrawal, amount $100.

Digital steps: Verify account balance: $5,027.89; Deduct amount: Balance $5,127.89; Update ledger: Complete; Authorize dispense $100.

Physical steps: Cassette #2, $1 bills; Dispense 100 bills; Verifier scans serial numbers; Bills exit dispenser, delivered.

From the cash cassette, 100 one-dollar bills are picked by a robotic arm, arranged, and sent to the dispenser. One of them has serial number L92047856G, printed in November 2019, already in circulation for a year and a half. That’s me.

For the first time, I had a physical form. From a line of record in a database, I became a tangible banknote with dimensions, weight, material, color, and design. I went from bit to atom.

Omar stuffs me and the other bills into his wallet, leaves the bank, drives to Santa Monica. Omar walks into this trendy coffee shop. He remembers coming here once last year, in 2020, when a pour-over coffee cost just $3.50. He looks at the menu board: the April 2021 menu. Single-origin pour-over: $4.50, up; Latte: $5.25, also up; Cappuccino: $5.00, up; Cortado: $4.75, still up. There’s a small note below: “Price increase due to rising costs.”

Price increase? Omar asks the barista. Barista Maria, a tired 26-year-old Mexican immigrant, smiles and says, “Yes, the boss says costs have gone up too much. If we don’t raise prices, we’ll have to close.”

Let’s break down this coffee shop’s cost changes to understand: March 2020, a pound of Ethiopian coffee beans: $12; by April 2021: $16, a 33% increase. Milk prices: up 21%. Shop rent: up 8%. Employee wages: minimum wage increased from $13 to $14 per hour, a 7.7% rise. Utilities (water, electricity, gas): up 11%. Packaging supplies, like paper cups and lids: from $0.12 each to $0.18 each, a whopping 50% increase. Average cost increase: about 22%. But menu prices only went up 28%, meaning profit margins were severely squeezed. “This is already our third price increase,” owner Carlos sighs in the back kitchen. “Raise prices again and customers won’t come; don’t raise them and we lose money.”

Omar orders a pour-over, pays $4.50. Me and three other one-dollar bills, plus two quarters, are placed into the cash register by Maria.

That night, Maria finishes her 8-hour shift. She calculates her income for the month: hourly wage $14, up a dollar from last year (7.7% increase); hours: 35 per week (the boss cut hours to reduce costs). Monthly income after taxes and social security: about $1,700 take-home.

Her expenses? Rent (a room in a shared apartment): from $800 to $900, a 12.5% increase. Food (groceries and eating out): from $350 to $480, a 37% increase. Transportation (bus and occasional taxi): up 20%. Utilities/Internet share: up 25%. Phone bill: up 12.5%. Student loan minimum payment: unchanged. Basic health insurance: up 7%. Total expenses went from $1,700 to $2,005, an 18% increase.

In March 2020, Maria earned $1,700, spent $1,700, balance zero. By April 2021, income $1,700, expenses $2,005, deficit $305. Maria looks at her bank account balance: only $237. “I need to find a second job,” she tells her roommate, “or move further away, but then transportation costs will go up again.”

This is the brutal far end of the Cantillon Effect.

Let’s look at the full panorama of the Cantillon Effect from March 2020 to April 2021:
First, the Fed and primary dealers. They got the new 5 trillion dollars first, bought assets at old prices. Wealth grew 20% to 100%.
Second, hedge funds, private equity, and the wealthy. They got money 3-6 months later. Asset prices had already risen somewhat but limitedly. Wealth grew 20% to 100%.
Then, the middle class with stocks or property. They felt asset appreciation 6-12 months later, but inflation was also rising by then. Wealth grew 5% to 30%.
Next, small business owners. They got PPP loans, but costs skyrocketed, profits were squeezed. Wealth growth: 0% to 10%.
Then, wage earners. Their wages rose 7.7%, living costs rose 18%. Real purchasing power fell by about 10%.
Finally, the unemployed and gig economy workers. Their incomes fell sharply or became unstable, living costs soared. Real purchasing power fell 20% to 50%.

The next day, Maria takes me and a few other bills to Ralphs supermarket. Pushing her cart, she’s shocked by the price tags: A dozen eggs, from $2.99 to $4.29, up 43%; a gallon of milk, up 37%; whole wheat bread, up 32%; chicken breast per pound, up 38%; broccoli per pound, up 40%; cooking oil, up 50%; tomatoes per pound, up 54%.

Her shopping list originally had 12 items, budget $50. But at checkout, with only 8 items, she’d already spent $52. She hands me and the other cash to the cashier.

My purchasing power? In March 2020, I could buy two pounds of chicken, or a dozen eggs plus a box of cereal. By April 2021, I could only buy a quarter-gallon of milk, or half a pound of chicken. I depreciated about 30% in thirteen months.

From the supermarket cash register, I flow into the supermarket owner’s account. Soon after, I’m used to pay an employee’s wages. Employee Jose gets his wages and pays rent to his landlord. I return to the digital world, from atomic state back to bit state.

Landlord Mr. Chen is a first-generation Chinese immigrant who owns three properties in LA. After receiving the rent, he checks his investment account: March 2020, property value $1.8 million, stock investments $200,000, total assets $2 million. April 2021, property value $2.4 million, up 33%; stock investments $310,000, up 55%; total assets $2.71 million, an increase of 35.5%.

Sitting in his living room sipping tea, he marvels, “I didn’t do anything, and my assets grew by $710,000. This country is crazy.”

Downstairs, in her $900-a-month rented room, Maria uses a calculator to figure out how to get through the month.

Folks, the same inflation means wealth appreciation for those with assets, but a survival crisis for those without.

For the next two years, 2021 to 2023, I underwent many transitions between bit and atom:

May 2021, Atom to Bit: Mr. Chen deposits the rent into Chase Bank. I go from cash to a number in a bank account.
June 2021, Bit to Bit: Mr. Chen uses me to invest in stocks, buying NVIDIA. I move from Chase account to Fidelity investment account.
December 2021, Bit to Bit: NVIDIA stock price up 80%, Mr. Chen takes some profits. I flow with the funds into a real estate investment trust (REIT).
March 2022, Bit to Bit: The REIT pays a dividend. Mr. Chen withdraws some cash for home renovation. I’m spat out by an ATM and handed to construction worker Carlos.
April to August 2022, Atom to Atom: Carlos uses me to buy materials at Home Depot; Home Depot gives change to customer Sarah; Sarah uses me to buy organic vegetables at the farmers’ market; the farmer deposits me into a bank. I experience twelve physical-world transactions in five months.
August 2022, Atom to Bit: Farmer makes a deposit, I return to the digital world.
September 2022 to June 2023, Bit constantly changing: The farmer’s bank lends me to a small business; the small business uses me to pay a supplier; the supplier deposits me into another bank; that bank buys U.S. Treasuries… I circulate within the financial system for nine months.

During these two years, in my dual digital and physical forms, I witnessed:
In the bit-world of finance: The cryptocurrency frenzy (Bitcoin from $10k to $69k to $16k), the NFT bubble (digital pictures selling for millions), the tech stock crash (Meta down 70%, Netflix down 75%), soaring inflation data (CPI from 1.4% to 9.1%), and the Fed’s疯狂加息 (interest rates from 0% to 5.25%).
In the atom-world of reality: Construction worker Carlos’s wage rose 15%, but rent rose 25%; organic tomatoes at the farmers’ market from $4/lb to $6.50/lb; Home Depot’s 2x4 lumber from $3 to $8 then back to $5; gasoline from $2.80/gallon to $5.80/gallon; the Third Wave coffee shop changed owners three times before finally closing down.

Folks, the same me, shuttling between two worlds, witnessed the violent oscillations of two parallel universes.

March 2022, the Fed launched the most aggressive rate-hiking cycle in forty years. The federal funds rate went from 0.25% in March 2022, to 1.75% in June, to 3.25% in September, 4.5% in December, and finally 5.5% by July 2023. Each 0.75% hike was like a hammer blow to financial markets.

I was in a pension account at the time, invested in a bond fund. Bond prices move inversely to interest rates. When the Fed raised rates from 0.25% to 5.5%, the 10-year Treasury yield rose from 0.7% to 4.8%, and bond prices crashed about 40%. My book value fell from $1.37 back to $0.95.

The stock market was even worse: Nasdaq down 35% from its high; Tesla from $1,200 to $108, down 91%; Apple from $338 to $88, down 74%. In 2022, both U.S. stocks and bonds fell simultaneously. Investors truly had nowhere to hide.

The purpose of rate hikes was to curb inflation, but the cost was economic recession. The hardest-hit groups:
First, the real estate market: 30-year mortgage rates rose from 3% to 7%, monthly payments increased 40-50%, home sales plummeted 30%, construction workers lost jobs en masse.
Second, the tech sector: Meta laid off 11,000, Amazon 27,000, Google 12,000—total 150,000 tech workers unemployed.
Third, small businesses: loan rates soared, consumer demand withered, failure rates rose 50%.
Fourth, wage earners: unemployment rose from 3.5% to 3.8%, hourly wage growth slowed, credit card default rates rose.

Remember barista Maria? March 2023, Third Wave café closed. She lost her job. Her financial situation? Savings: zero, long gone. Credit card debt: $4,200, interest rate up from 14% to 21%. Student loans: $28,000. Monthly income: zero. She applied for unemployment benefits: $450 per week. But rent had risen to $1,050 per month. Basic monthly expenses ~$1,800. Monthly unemployment ~$1,800. Surplus $200. She still had to make the minimum credit card payment of $150/month. She was left with $50 per month for transportation, medical, food, and socializing.

“I’m thinking of moving back to Mexico,” she tells a friend. “I can’t survive here anymore.”

This is the ultimate irony of the Cantillon Effect: In 2020, the Fed printed 5 trillion to save the economy, Wall Street made a fortune, the rich saw assets soar 35%. In 2022, the Fed hiked rates to curb inflation, Maria became unemployed and fell into poverty. She wasn’t there for the benefits, but she was there to pay the bill.

September 2023. As a physical banknote, my physical form was severely worn. Over two years, I underwent hundreds of transactions, touched by dozens of hands, folded in wallets, crushed in cash registers, crumpled in pockets. My corners were torn, Washington’s face blurred, the serial number nearly illegible, a two-centimeter tear on the right side, overall yellowed and soft.

The last time, a homeless man used me to buy a bottle of water at a convenience store. The cashier looked at me, frowned, but still accepted me. That night, the store owner deposited the day’s cash into the night safe. The next day, the bank’s armored truck came to collect.

Ah, my life. Under the scanner of a Chase Bank bill counter, I was judged: Serial L92047856G, issue date November 2019, circulation time three years ten months, condition assessment: unfit for circulation. Final status: multiple tears, severe soiling, structural integrity failed. Recommendation: Recycle and destroy. Destination: Federal Reserve Bank Currency Destruction Center.

I was removed from fit currency and placed with other damaged bills into a bag labeled “Mutilated Currency.” A week later, I arrived at the San Francisco Federal Reserve Bank, close to my birthplace.

The basement, Currency Destruction Center. Huge machines roar. Thousands of damaged bills move on a conveyor belt. I see my siblings, some more torn than me, some still somewhat intact, but all reaching life’s end. The shredder activates. A violent tearing sensation, I’m cut into hair-thin strips. These shreds are compressed into briquettes. Some will be used for building materials, some turned into souvenirs, some go to landfills.

My physical form vanished completely. But the story isn’t over.

Remember? I am essentially digital currency, just occasionally wearing a physical coat. My true self remained in the digital world.

October 2023, after the convenience store owner’s deposit, I (my digital self) entered Chase Bank’s system. The bank invested me and other deposits into a money market fund. The money market fund used me to buy short-term Treasuries (three-month). This batch of Treasuries was precisely the three-year notes issued in March 2020, now nearing maturity. And this batch was the very one the Fed bought via quantitative easing.

November 2024, the Fed’s balance sheet reduction plan, quantitative tightening, was still ongoing. Each month, the Fed let 60 billion dollars in Treasuries mature without reinvestment.

The trade record shows: Date November 15, 2024; maturing U.S. Treasury bills, face value 50 billion dollars; Holder: Federal Reserve System. Operation: Redeem, no reinvestment of this batch. The Treasury paid the Fed 50 billion dollars in principal and interest. This money returned to the Fed’s account and was then deleted.

The Fed’s balance sheet: Assets—U.S. Treasury holdings decreased by 50 billion dollars. Liabilities—Bank reserves decreased by 50 billion dollars. The monetary base shrank by 50 billion dollars. Me and my 4.999999999 billion siblings were thus erased from the digital world. No burning, no shredder. Just a database operation. I vanished, as silently as I was born.

From March 23, 2020, to November 15, 2024, I existed for four years, seven months, and twenty-three days.

Now, let’s review this journey and reveal the core secrets of the modern monetary system.

First: The birth of money is the digitization of debt. Folks, I am not money. I am a symbol of credit. My birth chain is this: The government needs money, creating a budget deficit; the government issues Treasury bonds (the government’s IOUs); Wall Street buys the bonds in the primary market; the Fed buys the bonds with digitally created currency; then, I am born. Essentially, modern money = government debt × central bank credit. It has no gold, no silver, no physical backing whatsoever. It’s backed only by the U.S. government’s promise to repay its debt, the Fed’s promise that these digits can be exchanged for goods, and the global consensus that dollars can buy things. If any of these three collapses, the dollar collapses.

Second: The Cantillon Effect creates inequality in money distribution. The closer you are to the printing press, the sooner you benefit; the farther you are, the later you suffer. Centimeters: The Fed gets money instantly, infinite purchasing power. Ten meters: Wall Street gets money within a week, assets just starting to rise, wealth can increase 50% to 100%. One hundred meters: Hedge funds and the wealthy get money in 1-3 months, assets already up 20%, wealth can increase 20% to 100%. One kilometer: Middle-class asset holders feel asset appreciation 6-12 months later, assets up 40%, wealth grows 5% to 30%. Ten kilometers: Small business owners get money 12-18 months later, assets up 50%, but profits are squeezed. One hundred kilometers: Wage earners feel the change 18-24 months later, assets up 60%, but real purchasing power falls 10%.

Look again at Maria’s tragedy: wage increase 7.7%, living cost increase 18%, real loss 10.3%. And Mr. Chen’s comedy? His assets up 35.5%, living costs up 18%, but as a small portion, real gain ~30%. Same inflation, completely different fates.

Third: Dollar hegemony is a triple-loop perpetual motion machine.
Loop 1: Domestic loop. Budget deficit leads to debt issuance; debt issuance leads to Fed QE; QE leads to money creation; money creation flows into financial markets, pushing up asset prices, creating a wealth effect; the wealth effect boosts consumption, leading to economic growth and higher tax revenue; but the deficit grows larger, so more debt is issued. Rinse and repeat.
Loop 2: International loop. The U.S. imports goods, dollars flow out; foreign countries earn dollars; foreign central banks reserve dollars, buying U.S. bonds and stocks; dollars flow back to the U.S., used for more imports. Again, rinse and repeat.
Loop 3: Financial loop. The Fed prints base money; bank credit expands; under the money multiplier effect, broad money M2 increases tenfold, pushing up asset prices; collateral升值 leads to more credit; the bubble inflates until it bursts; the Fed performs QE to rescue the market. And so the cycle goes.

The core of these three loops: The U.S. can buy global goods with printed money; the world must hold dollar assets because trade is settled in dollars; the biggest market for dollar assets is the U.S., so dollars always flow back to the U.S.

The only weakness of this system, folks, is confidence. If one day, U.S. government credit collapses (e.g., debt default), or Fed credit collapses (e.g., hyperinflation), or global consensus collapses (de-dollarization begins), then the whole system will collapse.

Fourth: Bit and Atom: The dual universe of money. In the modern economy, money exists simultaneously in two dimensions. In the bit-world, the digital world, money makes up 99.9% of the total. It can cross the globe instantly, is infinitely divisible, has no weight, no form, exists in bank servers. In the atom-world, the physical world, money is only 0.1% of the total. It is subject to physical limits, has transportation and storage costs, the smallest unit is one cent, has weight and wears out, exists in wallets and cash registers.

I shuttled between these two worlds: My origin was in the bit-world (Fed’s database). When I was withdrawn, I went from bit to atom. When circulating, it was atom-to-atom transfer. When deposited, I went from atom back to bit. When invested, it was bit-to-bit. When destroyed, atoms were shredded, or bits were deleted by quantitative tightening.

The key insight: Physical currency is just the manifestation of digital currency. They are fundamentally the same thing.

Fifth: The essence of inflation is time-arbitrage. Why does inflation cause inequality? Because not all prices rise at the same time. Let’s look at the sequence of price increases from 2020 to 2023: April-June 2020, stocks up 40%; July-September 2020, real estate up 15%; October-December 2020, commodities up 30%; January-June 2021, energy up 80%; July-December 2021, food up 35%; January-June 2022, rent up 25%; July-December 2022, services up 20%; Full-year 2023, wages finally up 8%.

See? People holding stocks benefited as early as April 2020. Wage earners didn’t see wage increases until 2023, but everything else had been rising for two years already. This time lag is the mechanism of wealth transfer.

Sixth: The truth of quantitative tightening is the eternal cycle of money. In 2024, the Fed did QT, I was deleted. But this is not the end. In 2025, when the next crisis hits—a stock market crash, bank failures, geopolitical conflict, economic recession—the Fed will restart QE. A new “me” will be created, repeating the same cycle. The monetary system is an eternal cycle: Boom, excessive leverage, bubble, crash, QE rescue, inflation, rate hikes, recession, QE rescue, boom… Each cycle, debt is higher, asset price baselines are higher, the wealth gap is larger, ordinary people’s real purchasing power is lower. Until one day, this system can no longer be sustained. What will happen then? Debt reset? Hyperinflation? A new monetary system? Social revolution? No one knows. But history tells us no monetary system lasts forever.

Finally, as investors, what macro investment frameworks can we derive from the story of The Quantum Life of a Dollar?

Core Insight 1: Understand the monetary cycle. The monetary cycle is the Fed’s policy cycle. It should be your investment clock. In the QE phase (Fed prints, buys bonds), stocks, bonds, commodities all rise. You should be fully invested in risk assets. In the early rate-hike phase (Fed tightens liquidity), stocks churn, bonds fall. You should reduce positions, hold cash. In the late rate-hike phase (Fed hikes aggressively), stocks and bonds fall. You should short, hold cash, or buy gold. In the pause phase (Fed on hold), markets bounce. You can start building positions gradually. When the Fed cuts rates, easing liquidity, a new bull market arrives. You should be fully invested again.

Core Insight 2: Cantillon Effect Investing. In a monetary easing cycle, buy assets closest to the printing press: financial stocks, bank stocks (first beneficiaries), tech stocks (high growth loves cheap money), real estate (direct beneficiary of low rates), and cryptocurrencies (the狂欢 of liquidity泛滥). In a monetary tightening cycle, buy assets that get hurt last: consumer staples (Coca-Cola, Procter & Gamble, rigid demand), healthcare (pharma, medical devices, non-cyclical), utilities (electricity, water, stable cash flow), and Treasuries, cash (the ultimate safe havens).

Core Insight 3: Quantitative investment strategy. Watch inflation data, unemployment, the 10-year Treasury yield. If CPI falls, unemployment rises, expect rate cuts—go long. If CPI rises, unemployment low, expect rate hikes—short or wait. Also watch the health of the Treasury market (10-year yield and 2s-10s spread). If the spread is negative (yield curve inverted), that’s a recession warning. If spread > 0.5 (curve steepening), it suggests possible economic recovery.

Core Insight 4: The core of long-term investing is to buy in crisis, sell in euphoria. March 2020 pandemic crash, S&P 500 at 2,300; end of 2021, everything-in bubble, S&P 500 at 4,800. If you bought in March, sold in December, you could have made 108%. Sadly, 99% of people did the opposite: they sold in panic in March, then FOMO-bought in December. Long-term investing isn’t about buying blue chips and forgetting them. It’s buying assets that benefit most in easing cycles and get hurt least in tightening cycles.

Core Insight 5: Always remember Maria. Investing isn’t just about making money; it’s about understanding the world. The story of a dollar tells us: The monetary system is a wealth redistribution mechanism. The beneficiaries of money printing are asset holders; the victims are wage earners. Inflation is not a natural phenomenon; it’s a policy choice. By choosing to print money, the government chooses inflation, and thus chooses wealth transfer. The market is not neutral; it’s biased. It favors capital over labor, finance over the real economy, the rich over the poor.

When you make money, remember it’s partly systemic advantage, not just your skill. When you lose money, remember it’s partly systemic risk, not just your mistake. Most importantly, folks, understand the rules of the game, don’t just complain about unfairness. Maria did nothing wrong. She worked hard, lived frugally, but she was in a game stacked against her.

Some morning in 2026, Washington D.C. The Treasury Secretary announces at a press conference, “Given slowing economic growth, we will issue a new round of Treasury bonds, size 2 trillion dollars.” The New York Fed trading floor, a trader’s fingers hover over the keyboard. The screen flashes an instruction: “Federal Reserve System, quantitative easing program restart, awaiting authorization.”

Somewhere, a new “one dollar” is about to be born. Will he journey the same path I did? Or witness a different world? No one knows. But as long as this monetary system keeps running, as long as debt keeps growing, as long as the Fed has the power to print, there will be countless “me”s swirling in the void, flowing through the economy, leaping in finance, wearing down in the physical world, perishing in data.

This is the quantum life of a dollar, and the eternal cycle of the modern monetary system.