Principles for Dealing with the Changing World Order

Last updated Apr 1, 2023 Edit Source

• Economics

currency devaluation: Back then paper dollars were also linked to gold which the us was running out of because it was spending more paper money checks then it had gold to exchange for them. Breaking the link to gold allowed the US to speding more than it erned, simply by printing more paper dollars, and the value of each dollar fell. Without a corrispendence in productinity, all this money went to buy lots of stocks gold and commodities and causes their price to rise!! The excact same things happend many many times before:

• 2008: leeman Brother
• 1971: Nixon
• 1933: Roosvelt
• 1850: UK
• 1650: Netherlands When governament spent much more than they took in in taxes and conditions got bad they ran out of money and they needed more so they printed more.

Principles: when central banks print a lot of money to relieve a crisis buy stocks gold and commodities because their value will rise and the value of paper money will fall

Principles: to understand what is coming at you you need to understand what happened before you

After WW2 dollar as the world’s leading reserve currency a reserve currency is a currency that is commonly accepted around the world and having one is a key factor in a country becoming the richest and most powerful empire. And a new world order begins. This is what we define as a Big Cicle.

If we take the history data, they transpired in overlapping cycles that lasted about 250 years with 10 to 20 year transition periods between them:

In a nutshell the big cycle typically begins after a major conflict often a war establishes the new leading power and the new world order.

Because no one wants to challenge this power a period of peace and prosperity typically follows as people get used to this peace and prosperity they increasingly bet on it continuing they borrow money to do that which eventually leads to a financial bubble.

When most transactions are conducted in its currency it becomes a reserve currency (peak of the curve).

Which leads to even more borrowing at the same time this increased prosperity distributes wealth unevenly so the wealth gap typically grows between rich and pour.

Eventually the financial bubble bursts which leads to the printing of money and increased internal conflict between the rich and the poor which leads to some form of revolution to redistribute well.

When a new rising power gets strong enough to compete with the dominant power that is having domestic breakdowns external conflicts most typically wars take place.

Let’s describe the typical cycle by dividing it into three phases the rise the top and the decline:

• strong education: provides a healthy respect for rules and laws order within society low corruption and enables them to unite behind a common purpose and work well together
• They do this they increasingly shift from producing basic products to innovating and inventing new technologies
• as a result the people in the country become more productive and more competitive in world markets which shows up in their growing economic output and rising share of world trade
• they develop great military strength
• leads to strong income growth which can be used to finance investments in education infrastructure and research and development they must also develop systems to incentivize and empower those that have the ability to make or take wealth
• Because their currency is so widely accepted and frequently used people around the world want to save in it making it the preferred storehold of wealth and thus the world’s leading reserve currency. having a reserve currency enables the empire to borrow more than other countries.
• they can always print more the exorbitant privilege afforded by the empire’s reserve currency leads borrowing to increase and the beginning of a financial bubble

• As a rule as people in these rich and powerful countries earn more that makes them more expensive and less competitive relative to people in other countries who are willing to work for less at the same time people in other countries naturally copy the methods and technologies of the leading power which further reduces the leading power’s competitiveness;
• people get used to doing well they increasingly bet on the good times continuing and borrow money to do that which grows into financial bubbles
• naturally the financial gains come unevenly so the wealth gap grows. wealth gaps are self-reinforcing because rich people use their greater resourcesto reinforce their powers for example they give greater privileges to their children like better education and they influence the political system to their advantage. as long as the living standards of most people are still rising these gaps and resentments don’t boil over into conflict;
• having the world’s reserve currency inevitably leads to borrowing excessively ,building up large debts with foreign lenders while this boosts spending power over the short term. it weakens the country’s financial health and weakens the currency over the long term.
• In this cycle the richer countries eventually get deeper into debt by borrowing from poorer countries that save more it’s one of the early signs of a wealth and powershift. this started in the united states in the 1980s when it had a per capita income 40 times that of china’s and started borrowing from chinese who wanted to save in dollars

the decline comes from internal economic weakness together with internal fighting or costly external fighting or both:

• when debts become very large and there is an economic downturn and the empire can no longer borrow the money necessary to repay its debts the financial bubble bursts
• this forces the country to choose between defaulting on its debts or printing a lot of new money
• that devalues the currency and raises inflation
• when there are bad economic conditions and living standards for most people are declining and there are large wealth values and political gaps internal conflict between the rich and the poor. this leads to political extremism that shows up as populism of the left or the right
• when the move to a strong populous leader who will bring order to the chaos is most likely as conflict within the country escalates it leads to some form of revolution or civil war to redistribute wealth
• this internal conflict makes the empire weak and vulnerable to rising external rivals who seeing this domestic weakness are more inclined to mount a challeng this raises the risk of great international conflict especially if the rival has built up a comparable military
• wars are terribly costly at the same time they produce the tectonic shifts that realign the new waters to the new realities of wealth and power in the world