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  • (dramatic music)

  • - [Ray Dalio] The changing world order.

  • The times ahead will be radically different

  • from those that we've experienced in our lifetimes,

  • though similar to many times before.

  • How do I know that?

  • Because they always have been.

  • Over my roughly 50 years of global macroeconomic investing,

  • I've learned the hard way

  • that the most important events that surprised me,

  • did so because they never happened in my lifetime.

  • These painful surprises led me to study

  • the last 500 years of history for similar situations

  • where I saw that they had indeed happened many times before

  • with the ups and the downs of the Dutch,

  • British,

  • and US empires.

  • And every time they did,

  • it was a sign of the changing world order.

  • This study taught me valuable lessons

  • that I'm going to pass along to you here

  • in a distilled form.

  • You can find the comprehensive version in my book,

  • Principles for Dealing with the Changing World Order.

  • Let me begin with a story that brought me to this point,

  • about how I learned to anticipate the future

  • by studying the past.

  • In 1971, when I was a young clerk

  • on the floor of the New York Stock Exchange,

  • the United States ran out of money

  • and defaulted on its debts.

  • That's right. The US ran out of money.

  • How?

  • Well, back then gold was the money

  • used in transactions between countries.

  • Paper money, like the dollar, was like checks in a checkbook

  • in that it had no value

  • other than it could be exchanged for gold,

  • which was the real money.

  • At the time, the United States was spending

  • a lot more money than it was earning

  • by writing a lot more of these paper money checks

  • than it had gold in the bank to exchange for them.

  • As people turned these checks into the bank for gold money,

  • the amount of gold in the US started to dwindle.

  • It soon became obvious

  • that the US couldn't keep its promises

  • for all the existing paper money,

  • so people holding dollars rushed to exchange them

  • before the gold ran out.

  • Recognizing that the US

  • was going to run out of real money,

  • on Sunday evening, August 15th,

  • President Nixon went on television to tell the world

  • that the US was breaking its promise

  • to let people exchange their dollars for gold.

  • Of course, he didn't say it that way.

  • He said it more diplomatically,

  • without making it clear

  • that the United States was defaulting.

  • - [President Nixon] The strength of a nation's currency

  • is based on the strength of that nation's economy.

  • And the American economy is by far

  • the strongest in the world.

  • Accordingly, I have directed the secretary of the treasury

  • to take the action necessary

  • to defend the dollar against the speculators.

  • I have directed Secretary Connally to suspend temporarily

  • the convertibility of the dollar into gold

  • or other reserve assets,

  • except in amounts and conditions

  • determined to be in the interest of monetary stability

  • and in the best interest of the United States.

  • - [Ray] I watched in awe

  • realizing that money as we understood it was ending.

  • What a crisis!

  • I expected the stock market to plunge the next day,

  • so I got on the exchange floor early to prepare.

  • When the opening bell rang, pandemonium broke out,

  • but not the kind I expected.

  • The market was up - way up -

  • and went on to rise nearly 25%.

  • That surprised me

  • because I never experienced a currency devaluation before.

  • When I dug into history,

  • I discovered that the exact same thing happened in 1933

  • and had the exact same effect.

  • Then, paper dollars were also linked to gold,

  • which the US was running out of

  • because it was spending more paper money checks

  • than it had gold to exchange for them.

  • And President Roosevelt announced on the radio

  • that he would break the country's promise

  • to exchange dollars for gold.

  • - [President Roosevelt] It was then that I issued the

  • proclamation providing for the national bank holiday.

  • And this was the first step

  • in the government's reconstruction

  • of our financial and economic fabrics.

  • The second step, last Thursday, was the legislation

  • promptly and patriotically passed by the Congress

  • confirming my proclamation and broadening my powers

  • so that it became possible

  • in view of the requirement of time

  • to extend the holiday and lift the ban of that holiday

  • gradually in the days to come.

  • This law also gave authority

  • to develop a program...

  • - [Ray] In both cases, breaking the link to gold

  • allowed the US to continue spending more than it earned

  • simply by printing more paper dollars.

  • Since there was an increase in the number of dollars

  • without an increase in the country's wealth,

  • the value of each dollar fell.

  • As these new dollars entered the market

  • without a corresponding increase in productivity,

  • they went to buy lots of stocks, gold and commodities,

  • and hence caused their prices to rise.

  • As I studied more history,

  • I saw that the exact same thing happened

  • many, many times before.

  • I saw that since the beginning of time,

  • when governments spent much more than they took in taxes

  • and conditions got bad,

  • they ran out of money and they needed more.

  • So, they printed more, a lot more,

  • which made its value fall

  • and made the prices of most everything,

  • including stocks, gold and commodities rise.

  • That's when I first learned the principle that

  • 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.

  • This printing of money is also what happened in 2008

  • to relieve the mortgage-driven debt crisis,

  • and in 2020 to relieve the pandemic-driven economic crisis.

  • And it almost certainly will happen in the future.

  • So, I suggest that you keep this principle in mind.

  • These experiences gave me another principle, which is,

  • to understand what is coming at you,

  • you need to understand what happened before you.

  • That principle led me to study

  • how the roaring twenties bubble

  • turned into the 1930s depression,

  • which gave me the lessons

  • that allowed me to anticipate

  • and profit from the 2007 bubble

  • turning into the 2008 bust.

  • All these experiences led me to develop

  • an almost instinctual urge

  • to look to the past for similar situations

  • to learn how to handle the future well.

  • Changing orders.

  • (man whistles)

  • (machine beeping)

  • Over the last few years,

  • three big things that hadn't happened in my lifetime

  • prompted me to do this study.

  • First, countries didn't have enough money

  • to pay their debts,

  • even after lowering interest rates to zero.

  • So their central banks began printing lots of money

  • to do so.

  • Second, big internal conflicts emerged

  • due to growing gaps in wealth and values.

  • This showed up in political populism

  • and polarization between the left,

  • who want to redistribute wealth,

  • and the right, who want to defend those holding the wealth.

  • And third, increasing external conflict

  • between a rising great power and the leading great power,

  • as is now happening with China and the United States.

  • So, I looked back.

  • I saw that all these had happened together before many times

  • and nearly always led to changing domestic and world orders.

  • The last time this sequence happened was from 1930 to 1945.

  • What exactly is an order? You might ask.

  • It's a governing system for people dealing with each other.

  • There are internal orders for governing within countries,

  • typically laid out in constitutions.

  • And there is a world order for governing between countries,

  • typically laid out in treaties.

  • Internal orders change at different times than world orders,

  • though whether within or between countries,

  • these orders typically change after wars.

  • Civil wars within countries,

  • international wars between countries.

  • They happen when revolutionary new forces

  • defeat weak old orders.

  • For example, the US internal order

  • was laid out in the constitution in 1789

  • after the American Revolution,

  • and it is still operating today,

  • even after the American Civil War.

  • Russia got rid of its old order and established a new one

  • with the Russian revolution in 1917,

  • which ended in 1991 with a relatively bloodless revolution.

  • China began its current internal order in 1949

  • when the Chinese Communist Party won the civil war.

  • You get the idea.

  • The current world order

  • commonly called the American world order,

  • formed after the allied victory in World War II

  • when the US emerged as the dominant world power.

  • It was set out in agreements and treaties

  • for how global governance and monetary systems work.

  • In 1944, the new world monetary system

  • was laid out in the Bretton Woods Agreement

  • and established the 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.

  • With a new dominant power and monetary system established,

  • a new world order begins.

  • These changes take place in a timeless and universal cycle

  • that I call the big cycle.

  • I'll start with a quick overview,

  • then give you a more complete version

  • and then direct you to my book if you want more.

  • As I studied the 10 most powerful empires

  • over the last 500 years

  • and the last three reserve currencies,

  • it took me through the rise and decline

  • of the Dutch empire and the guilder,

  • the British empire and the pound,

  • the rise and early decline

  • in the United States empire and the dollar,

  • and the decline and rise of the Chinese empire

  • and its currencies,

  • as well as the rise and decline of the Spanish, German,

  • French, Indian, Japanese, Russian, and Ottoman empires,

  • along with their significant conflicts

  • as measured in this chart.

  • To understand China's patterns better,

  • I also studied the rise and fall

  • of Chinese dynasties and their monies back to the year 600.

  • Because looking at all these measures at once

  • can be confusing,

  • I'll focus on the four most important ones,

  • the Dutch, British, US and Chinese.

  • You'll quickly notice the pattern.

  • Now let's simplify the form a bit.

  • As you can see, they transpired in overlapping cycles

  • that lasted about 250 years

  • with 10 to 20 year transition periods between them.

  • Typically, these two transitions

  • have been periods of great conflict

  • because leading powers don't decline without a fight.

  • So, how am I measuring an empire's power?

  • In this study, I used eight metrics.

  • Each country's measure of total power

  • is derived by averaging them together.

  • They are education,

  • inventiveness and technology development,

  • competitiveness in global markets, economic output,

  • share of world trade, military strength,

  • the power of their financial center for capital markets

  • and the strength of their currency as a reserve currency.

  • Because these powers are measurable,

  • we can see how strong each country is now, was in the past,

  • and whether they're rising or declining.

  • By examining the sequences from many countries,

  • we can see how a typical cycle transpires.

  • And because the wiggles can be confusing,

  • we can simplify it a bit

  • to focus on the pattern of cause-effect relationships

  • that drive the rise and decline of a typical empire.

  • As you can see, better education typically leads

  • to increased innovation and technology development,

  • and with a lag, the establishment of the currency

  • as a reserve currency.

  • You can also see that these forces

  • then declined in a similar order,

  • reinforcing each other's decline.

  • Let's now look at the typical sequence of events

  • going on inside a country

  • that produces these rises and declines.

  • 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.

  • The empire's share of trade grows.

  • And when most transactions are conducted in its currency,

  • it becomes a reserve currency,

  • which leads to even more borrowing.

  • At the same time, this increased prosperity

  • distributes wealth unevenly.

  • So the wealth gap typically grows

  • between the rich "haves" and the poor "have-nots".

  • Eventually, the financial bubble bursts,

  • which leads to the printing of money,

  • an increased internal conflict

  • between the rich and the poor,

  • which leads to some form of revolution

  • to redistribute wealth.

  • This can happen peacefully or as a civil war.

  • While the empire struggles with this internal conflict,

  • its power diminishes relative to

  • external rival powers on the rise.

  • 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.

  • Out of these internal and external wars

  • come new winners and losers.

  • Then the winners get together to create the new world order.

  • And the cycle begins again.

  • As I looked back,

  • I saw that these cause and effect relationships

  • drove the cycles of rises and declines

  • all the way back to the Roman empire.

  • I saw how the stories of each one of these cycles

  • blended together with others before, during, and after

  • in the same way as each individual story blends with others

  • to make the epic 500 year story

  • that is our collective history.

  • And like human life cycles,

  • no two are exactly the same, but most are similar.

  • They're driven by logical cause and effect relationships

  • that progress through stages from birth

  • to strength and maturity

  • to weakness and inevitably decline.

  • However, that's like saying a person's life cycle

  • takes 80 years on average

  • without recognizing that many are much shorter

  • and many are longer.

  • While age can be a good indicator of future longevity,

  • a better way is to look at health indicators.

  • One can do that with empires and their vital signs too.

  • I found that by watching the indicators of power change,

  • I was able to see what stage a country was in,

  • which helped me to anticipate what was likely to come next.

  • Now, I'll take you through the big cycle in more detail.

  • Give me 20 minutes

  • and I'll give you the last 500 years of history

  • and show you the similar patterns across

  • the Dutch, British, US and Chinese empires.

  • 500 years of big cycles.

  • (wind whooshing)

  • I'm going to describe the typical cycle

  • by dividing it into three phases.

  • The rise, the top, and the decline.

  • The rise.

  • Successful new orders that rise, both internal and external,

  • are typically started by powerful revolutionary leaders

  • doing four things.

  • First, they win power

  • by gaining more support than the opposition.

  • Second, they consolidate power

  • by converting, weakening, or eliminating the opposition

  • so they don't stand in their way.

  • Third, they establish systems and institutions

  • that make the country work well.

  • And fourth, they pick their successors well,

  • or create systems that do that,

  • because a great empire requires many great leaders

  • over several generations.

  • At this stage soon after winning the fight,

  • there was typically a period of peace and growing prosperity

  • because the leadership is clearly dominant

  • and has broad support so no one wants to fight it.

  • During this phase, leaders within the country

  • have to design an excellent system

  • to raise the country's wealth and power.

  • First and foremost, to be great

  • they must have strong education,

  • which is not just teaching knowledge and skills,

  • but also strong character, civility and work ethic.

  • These are typically taught in the family,

  • schools and religious institutions.

  • That 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.

  • As they do this,

  • they increasingly shift from producing basic products

  • to innovating and inventing new technologies.

  • For example, the Dutch rose to defeat the Habsburg empire

  • and become superbly educated.

  • They became so inventive that they came up with a quarter

  • of all major inventions in the world.

  • The most important of which was the invention of ships

  • that could travel around the world to collect great riches

  • and the invention of capitalism as we know it today

  • to finance those voyages.

  • They, like all leading empires, enhanced their thinking

  • by being open to the best thinking in the world.

  • 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.

  • You can see this happening now

  • as the US and China are roughly comparable

  • in both their economic outputs

  • and their shares of world trade.

  • As countries trade more globally,

  • they must protect their trade routes

  • and their foreign interests from attack.

  • So they develop great military strength.

  • If done well, this virtuous cycle

  • 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.

  • In all of these cases, the most successful empires

  • used a capitalist approach

  • to develop productive entrepreneurs.

  • Even China, which is run by the Chinese Communist Party,

  • used a form of this capitalist approach.

  • (cash registers ringing)

  • Deng Xiaoping, when asked about this, said,

  • "It doesn't matter if it's a white cat or a black cat,

  • "as long as it catches mice."

  • And "it's glorious to be rich."

  • To do this well, they must develop their capital markets.

  • Most importantly, their lending, bond and stock markets.

  • That allows people

  • to convert their savings into investments,

  • to fund invention and development

  • and share in the successes

  • of those who make great things happen.

  • The Dutch created the first publicly listed company,

  • the Dutch East India Company,

  • and the first stock market to fund it,

  • which were integral parts of the system

  • that produced massive wealth and power.

  • As a natural consequence, the greatest empires developed

  • the world's leading financial centers

  • for attracting and distributing the world's capital.

  • Amsterdam was the world's financial center

  • when the Dutch were preeminent,

  • London when the British were on top,

  • New York is now,

  • and China is quickly developing its financial centers.

  • Most importantly, the capitalists, the governments

  • and the military must work together.

  • Not only did the Dutch work well together,

  • they were one in the same.

  • The Dutch East India Company

  • was granted a trade monopoly from the government

  • and had its own officially sanctioned military

  • to go out into the global markets to make and take wealth.

  • The British followed with the British East India Company

  • and had a similar coordination

  • of their government, business and military operations.

  • The US Military Industrial Complex followed suit,

  • as does the Chinese system today.

  • As the country becomes

  • the largest international trading empire,

  • its transactions can be paid with its currency,

  • making it the preferred global medium of exchange,

  • and because their currency

  • is so widely accepted and frequently used,

  • people around the world want to save in it,

  • making it the preferred store hold of wealth.

  • And thus the world's leading reserve currency.

  • The guilder was the world's main reserve currency

  • when the Dutch led world trade.

  • The pound was when the British led.

  • And the dollar has been since the US led.

  • Naturally, China's currency is increasingly being used

  • as a reserve currency.

  • Having a reserve currency enables the empire

  • to borrow more than other countries.

  • That advantage is huge.

  • Think about it.

  • People all over the world are eager to save

  • and hence lend back their currency to the empire.

  • Countries without a reserve currency don't have that.

  • And when the empire runs out of its own money,

  • remember the United States in 1971,

  • 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.

  • This series of cause and effect relationships,

  • leading to mutually supportive

  • financial, political and military powers,

  • bolstered by the borrowing power of a reserve currency,

  • have gone together since history began to be recorded.

  • All the empires that became the most powerful in the world

  • followed this path to the top.

  • While in the top phase,

  • most of these strengths are sustained,

  • embedded within the fruits of their success

  • are the seeds of their decline.

  • 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.

  • For example, British ship builders

  • had less expensive workers than Dutch ship builders.

  • So, they hired Dutch designers to design better ships

  • that were built by less expensive British workers,

  • making them more competitive,

  • which led the British to rise and the Dutch to decline.

  • Also, as people become richer,

  • they tend not to work as hard.

  • They enjoy more leisure,

  • pursue the finer and less productive things in life,

  • and at the extreme, become decadent.

  • Values change from generation to generation

  • during the rise to the top

  • from those who had to fight to achieve wealth and power

  • to those who inherited it.

  • (boy groans) (boy blows raspberry)

  • They're less battle heartened, steeped in luxuries

  • and accustomed to the easy life,

  • which makes them more vulnerable to challenges.

  • The golden era of the Dutch empire

  • (glasses clink)

  • and the Victorian era of the British empire

  • (glasses clink)

  • were such high prosperity periods like this.

  • As people get used to doing well,

  • they increasingly bet on the good times continuing

  • and borrow money to do that,

  • which grows into the financial bubbles.

  • Naturally, the financial gains come unevenly.

  • So, the wealth gap grows.

  • Wealth gaps are self-reinforcing

  • because rich people use their greater resources

  • to reinforce their powers.

  • For example, they give greater privileges to their children,

  • like better education,

  • and they influence the political system to their advantage.

  • This causes the gaps in values, politics,

  • and opportunities to grow between

  • the rich "haves" and the poor "have-nots".

  • Those who are less well-off feel the system is unfair,

  • so resentments grow.

  • But as long as the living standards

  • of most people are still rising,

  • these gaps in resentments don't boil over into conflict.

  • Having the world's reserve currency

  • inevitably leads to borrowing excessively

  • and contributes to the country 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 other words, when borrowing and spending are strong,

  • the empire appears very strong,

  • but its finances are in fact being weakened.

  • The borrowing sustains the country's power

  • beyond its fundamentals

  • by financing both domestic over consumption

  • and international military conflicts

  • required to maintain the empire.

  • Inevitably, the cost of maintaining and defending the empire

  • becomes greater than the revenue it brings in.

  • So having an empire becomes unprofitable.

  • For example, the Dutch empire overextended around the world

  • and fought war after increasingly expensive war

  • with the British and other European powers

  • to protect its territory and trade routes.

  • The British empire similarly became massive, bureaucratic,

  • and lost its competitive advantages as rival powers,

  • particularly Germany, soared,

  • leading to an increasingly expensive arms race

  • and world war.

  • The US has spent about eight trillion dollars

  • on foreign wars and their consequences since September 11th,

  • and trillions more for other military operations

  • and for supporting military bases in 70 countries,

  • and it still isn't spending enough

  • to support its military competition with China

  • in the area around China.

  • In this cycle, the richer countries

  • eventually get deeper into debt

  • by borrowing from poor countries that save more.

  • It's one of the early signs of a wealth and power shift.

  • 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

  • because the dollar was the world's reserve currency.

  • Similarly, the British borrowed a lot of money

  • from its much poorer colonies

  • and the Dutch did the same at their top.

  • If the empire begins to run out of new lenders,

  • those holding their currency

  • begin to look to sell and get out

  • rather than to buy, save, lend, and get in,

  • and the strength of the empire begins to decline.

  • The decline.

  • The decline comes from internal economic weakness

  • together with internal fighting

  • or costly external fighting or both.

  • Typically, the decline comes gradually

  • and then very suddenly.

  • 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 creates great domestic hardships

  • and forces the country to choose between

  • defaulting on its debts or printing a lot of new money.

  • It always chooses to print a lot of new money.

  • At first gradually, and eventually massively.

  • That devalues the currency and raises inflation.

  • For the Dutch, this was the financial crisis

  • brought about by financial excesses

  • and paying for the Fourth Anglo-Dutch War.

  • Similarly, for the British,

  • it was paying for its financial excesses

  • and its debts from the two world wars.

  • And for the US, it's been three cycles

  • of debt, finance, booms, and busts since the nineties

  • with the central bank stepping in each time

  • with stronger measures.

  • When the government has problems funding itself,

  • 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,

  • as well as different ethnic, religious, and racial groups

  • greatly increases.

  • This leads to political extremism

  • that shows up as populism of the left or the right.

  • Those of the left seek to redistribute the wealth

  • while those of the right seek to maintain the wealth

  • in the hands of the rich.

  • Typically during such times, taxes on the rich rise

  • and when the rich fear their wealth and wellbeing

  • will be taken away,

  • they move to places, assets, and currencies

  • they feel safer in.

  • These outflows reduce the empire's tax revenue,

  • which leads to a classic, self-reinforcing,

  • hollowing out process.

  • When the flight of wealth gets bad enough,

  • governments outlaw it.

  • Those seeking to get out begin to panic.

  • These turbulent conditions undermine productivity,

  • which shrinks the economic pie and causes more conflict

  • about how to divide the shrinking resources.

  • Populist leaders emerge from both sides

  • and pledge to take control and bring about order.

  • That's when democracy is most challenged,

  • because it fails to control the anarchy,

  • and it is when the move to a strong populist 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 and force the necessary big changes.

  • This can be peaceful and maintain the existing order,

  • but it's more often violent and changes the order.

  • For example, the Roosevelt revolution to redistribute wealth

  • was relatively peaceful

  • and maintained the existing internal order,

  • while the French revolution, the Russian revolution,

  • and the Chinese revolution were much more violent

  • and led to new internal orders.

  • This internal conflict makes the empire weak

  • and vulnerable to rising external rivals

  • who, seeing this domestic weakness,

  • are more inclined to mount a challenge.

  • This raises the risk of great international conflict,

  • especially if the rival has built up a comparable military.

  • Defending one's self and one's empire against rivals

  • requires great military spending, which has to occur

  • as domestic economic conditions are deteriorating

  • and the empire can least afford it.

  • Since there is no viable system

  • for peacefully adjudicating international disputes,

  • these conflicts are typically resolved

  • through tests of power.

  • As bolder challenges are made,

  • the leading empire is faced with the difficult choice

  • of fighting or retreating.

  • Fighting and losing is the worst outcome,

  • but retreating is bad too as it cedes progress to the rival

  • and signals that the empire is weak

  • to those countries that are considering which side to be on.

  • Poor economic conditions

  • cause more fighting for wealth and power,

  • which inevitably leads to some kind of war.

  • Wars are terribly costly.

  • At the same time, they produce the tectonic shifts

  • that realign the new orders

  • to the new realities of wealth and power in the world.

  • When those holding the reserve currency and debt

  • of the declining empire lose faith and sell them,

  • that marks the end of its big cycle.

  • Of the roughly 750 currencies that existed since 1700,

  • less than 20% now exist,

  • and all of them have been devalued.

  • For the Dutch, this happened after their defeat

  • in the Fourth Anglo-Dutch War,

  • when they weren't able to repay

  • the massive debts they built up during it.

  • This led to a run on the bank of Amsterdam

  • and a desperate sell off,

  • forcing massive money printing,

  • which devalued the currency

  • and the empire into irrelevance.

  • For the British, this happened after World War II,

  • when despite their victory,

  • they could not repay the massive debts they borrowed

  • to fund their war effort.

  • This led to a series of money printing, devaluations,

  • and selloffs in the British pound

  • as the US and the dollar emerged dominant

  • and created a new world order.

  • At the time of this recording,

  • the United States hasn't yet reached this point.

  • While it has massive debt, spends more than it earns

  • and funds this deficit with more borrowing

  • and printing huge amounts of new money,

  • the big sell off in dollars and dollar debt

  • hasn't yet begun.

  • And while there are great internal and external conflicts

  • occurring for all the classic reasons,

  • they've not yet crossed the line to become wars.

  • Eventually out of these conflicts,

  • whether they're violent or not,

  • come new winners who get together

  • and restructure the losers' debts and political systems

  • and establish the new world order.

  • Then the old cycle and empire ends

  • and the new one begins

  • and they do it all over again.

  • That's a lot of detail I just threw at you

  • to paint a picture of how the typical big cycle transpires.

  • Of course, not all of them transpire exactly this way,

  • but most largely do, so much so

  • that it seems like the stories of rises and declines

  • stay essentially the same

  • and the only things that change

  • are the clothes the characters wear

  • and the technologies they use.

  • So, where are we heading?

  • The future.

  • Most empires have their time in the sun

  • and inevitably decline.

  • Reversing a decline is difficult

  • because that requires undoing a lot

  • that's already been done, but it's possible.

  • By looking at these indicators, it's pretty easy to see

  • which stage of the big cycle an empire is in,

  • how fit it is,

  • and whether its condition is improving or worsening,

  • which can help one estimate how many years it has left.

  • Still, these estimates aren't precise

  • and the cycle can be extended

  • if those in charge pay attention to their vital signs

  • and improve them.

  • For example, knowing that a person is 60 years old,

  • how fit they are, whether they smoke or not

  • and a few other basic vital signs,

  • one can estimate the person's longevity.

  • One can do that with empires and their vital signs too.

  • It won't be precise, but it will be broadly indicative

  • and give clear direction on steps to take

  • to increase longevity.

  • It's most often the case

  • that a nation's greatest war is with itself

  • over whether or not it can make the hard decisions

  • needed to sustain success.

  • As for what we need to do,

  • it comes down to just two things -

  • earn more than we spend, and treat each other well.

  • All other things I mentioned -

  • strong education, inventiveness,

  • being competitive and all the rest -

  • are just ways of getting at these two things.

  • It's easy to measure if we're doing them.

  • So like people who want to get fit,

  • let's get on the program and improve our vitals.

  • Let's do that individually and collectively.

  • My goal for sharing this picture of how the world works

  • and a few principles for dealing with it well

  • is to help you recognize where we are

  • and the challenges we face,

  • and to make the wise decisions needed

  • to navigate these times well.

  • Since there is a lot more to discuss and we are out of time,

  • you can learn more in my book

  • Principles for Dealing with the Changing World Order.

  • And I look forward to continuing this conversation

  • at economicprinciples.org

  • and on social media.

  • Thank you,

  • and may the force of evolution be with you.

  • (dramatic music)

(dramatic music)

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