I combined these indicators into gauges and equations that we use to produce 10-year growth estimates across the 20 largest economies. Socialism is the first stage of communismâ¦We permit some people and some regions to become prosperous first for the purpose of achieving common prosperity faster...The first stage of socialism takes a long timeâ¦Despite the rich/poor divide, wealth in China is more evenly distributed than in any time in historyâ¦The CPC can see the gap widening and is taking actionâ¦â Maybe thatâs true and maybe itâs not. |, 152 They all run the same way, which is explained in greater depth in my book Principles for Navigating Big Debt Crises. To have peaceful coexistence Americans must understand that the Chinese believe that their values and their approaches to living out these values are best as much as Americans believe their American values and their ways of living them out are best. Typically at this stage in the debt cycle there is also economic stress caused by large wealth and values gaps, which lead to higher taxes and fighting between the rich and the poor, which also makes those with wealth want to move to hard assets and other currencies and other countries. As a principle: Protecting oneâs wealth in times of war is difficult, as normal economic activities are curtailed, traditionally safe investments are not safe, capital mobility is limited, and high taxes are imposed when people and countries are fighting for their survival. [1] To be clear, while I am describing these cycles of the past, Iâm not one of those people who believe that what happened in the past will necessarily continue into the future without understanding the cause-effect mechanics that drive changes. Book version to be released this fall; read excerpts below now. It was the process of needing to understand what Mao and those who succeeded him, especially Xi now, found appealing in this philosophy that led me to dig more into Marxâs writings. As shown in the chart below the Dutch East India Company, which was essentially the Dutch economy and military wrapped into a company, started to make losses in 1780, which became enormous during the Fourth Anglo-Dutch War. Generally speaking, though not always, kingdoms are small, countries are bigger, and empires are biggest (spreading beyond the kingdom or the country). This creating of the debt and money is now happening in amounts that are greater than at any time since World War II. That is what makes having a strong military so important. The yen is a currency that is not widely used internationally by non-Japanese people and suffers from a lot of the same problems that the dollar does, including having too much debt that is increasing quickly and being monetized so that it is paying unattractive interest rates. These differences become reflected in differences in everyday life. Though the big-picture synthesis that Iâm sharing in this chapter is my own, you should know that the theories I express in this book have been well-triangulated with other experts. As a result, I believe that I see both the American and Chinese perspectives pretty well. For these reasons these âleftâ versus ârightâ inclinations appear to be more Big Cycle swings around the evolutionary trends than core values that are evolving. Performance and markets may be higher or lower than what is shown herein and the information, assumptions and analysis that may be time sensitive in nature may have changed materially and may no longer represent the views of Bridgewater. These sanctions are by no means perfect or all-encompassing, but they are generally damned effective. However, the holders of the paper claims and the banks soon discover the wonders of credit and debt. That has been true for the US and the US dollar. The Federal Reserve protected the American banks by providing them with the money they needed, and the American accounting system protected them from going broke by not requiring them to account for these bad debts as losses or value these debt assets at realistic prices. This was natural because the two world wars made the US the richest and most powerful country by far. [41] Note: To fully represent the likely economics of a deposit holder at the Bank of Amsterdam, we assumed depositors each received their pro-rated share of precious metal still in the bank's vaults when it was closed (that was roughly 20% of the fully backed amount, thus the approximately 80% total devaluation). In the Western world the dominant philosophies are Judeo-Christian, democratic, and capitalist/socialist. Because the monetary system has been a free-floating monetary system there have not been the abrupt breaks that there have been in the past; there has been a more gradual and continuous devaluation in which low or in some cases negative interest rates did not provide compensation for the increasing amount of money and credit and the resulting (albeit low) inflation. Additionally, if you want a simple and entertaining 30-minute explanation of how what a lot of what Iâm talking about here works, see âHow the Economic Machine Works,â which is available on YouTube. Thus far we havenât seen this, though we have seen movements in this direction. Also notable, a) Chinaâs rate of improvement in its military power, like its other rates of improvement, has been extremely fast, especially over the last 10 years, and b) the rate of progress in the future is expected to be even faster, especially if its economic and technological improvements continue to outpace those of the United States. Besides affecting how I view things, I see how studying so much history up to the present has greatly affected how the Chinese think relative to how Americans think. This lending led to the classic debt bubble part of the debt cycle. During this period China rose to be a nearly comparable power to the United States and together they created most of the new wealth and new technologies while the rest of the world fell back relative to the leaders. In watching them transpire we need to observe and try to understand each sideâs strategic goalsâe.g., are they trying to hasten a conflict (which some Americans think is best for the US because time is on Chinaâs side because China is growing its strengths at a faster pace) or are they trying to ease the conflicts (because they believe that they would be better off if there is no war)? Between 1952 and 1957, with the help of the Soviets, industrial production grew at 19% per year, national income grew at 9% per year, and agricultural production grew by 4% per year. A few years ago, renowned investor Ray Dalio began noticing a confluence of political and economic conditions he hadn’t encountered before in his fifty-year career. Since then the RMB has had some fluctuations but hasnât depreciated below the 2005 rate (when de-pegged). [6]In October they will come up with their 14th five-year plan and targets for 2035. From examining all these cases across empires and across time, I saw that important empires typically lasted roughly 250 years, give or take 150 years, with big economic, debt, and political cycles within them lasting about 50-100 years. These domestic conflicts stewed while emerging powers (Germany and Japan in the 1930s) increasingly challenged the existing world power. Those that make it to the top acquire the characteristics on the left (which causes them to ascend), but with time they move to the right, which makes them more prone to decline, while new competitive countries acquire the characteristics to the left until they are stronger, at which time the shift occurs. Bridgewater research utilizes data and information from public, private and internal sources, including data from actual Bridgewater trades. Early on Deng set out a 70-year plan to a) double incomes and assure that the population had enough food and clothing by the end of the 1980s, b) quadruple GDP per capita by the end of the 20th century (which was achieved in 1995, five years ahead of schedule), and c) increase per capita GDP to the levels of medium-level developed countries by 2050 (at the 100th anniversary of the PRC). Deng also reformed governmentâs decision-making structure. Since the new world order began in 1945, among China, Russia, and the United States, two out of the three of them have allied to neutralize or overpower the third. Because it takes less time and money to copy than invent, all else being equal, emerging empires tend to gain on mature empires through copying. Now we need to drop down and look at where we are in more detail, hopefully without losing sight of that big picture. The debt-restructuring process progressed slowly from 1982 until 1989 when an agreement called the Brady Bond agreement, named after Nicholas Brady, who was the US Treasury Secretary at the time, was created and started to bring to an end to âthe lost decadeâ in these countries (as agreements were reached with different countries through the early â90s). However, nobody can argue that the Chinese mix of communism and capitalism has not produced remarkable economic results over the last 40 years. It is shown in the chart below. Turning protectionist and raising tariffs to protect domestic businesses and jobs during periods of economic bad times is common. After all this is what happened to China over the prior 100 years, and the world in the 1930-45 period was in one of the most extreme wars between the ârich capitalistsâ and the âworking class communists.â It was interesting to me to see how Maoâs view of capitalism differed from my view of capitalism because his experience with it was so different from mine, though both of our views about it were true. [4]https://www.mercatus.org/publications/economic-history/economic-recovery-lessons-post-world-war-ii-period. These policies by and large worked well. This is another good example of how borrowing in oneâs own currency and increasing oneâs own debt and deficits can be highly productive if the money borrowed is put into investments that raise productivity that produces more than enough cash flow to service the debt and, even if it doesnât cover 100% of the debt service, it can be very cost-effective in achieving the economic goals of the country. On January 20, 1981, the same day Reagan was inaugurated as president, the Iranians released the hostages. You also wouldnât understand why, soon after his inauguration in 1933, he announced a new plan in which the central government and the Federal Reserve would together provide a lot of money and credit, a change that was similar to things happening in other countries at the same time and similar to what is happening now. The views expressed herein are solely those of Bridgewater and are subject to change without notice. In 1984 I had my first direct contact with China. He was the person who knew more about monetary systems and was more at the center of the US dollar system from before the 1971 monetary breakdown (he was the Undersecretary of International Monetary Affairs under Nixon when Nixon severed the link with gold) through the 1970s inflation that resulted from its breakdown. Stock market closings in a number of countries were common, leaving investors in stocks stuck without access to their capital. Consistent with China being an intelligent and industrious society, there were many technological inventions created that moved the economy forward. In 1950, soon after Mao won the revolution and began the PRC in 1949, he and the Soviets signed the Treaty of Friendship, Alliance, and Mutual Assistance to cooperate and come to each otherâs aid militarily. Wealthy Dutch savers moved their cash abroad both to get out of Dutch investments and into British investments, which were more attractive due to strong earnings growth and higher yields.15 While debt burdens had grown through most of the 1700s,17 the Dutch guilder remained widely accepted around the world as a reserve currency so it held up solely because of the functionality of and faith in it.17 (As explained earlier, reserve currency status classically lags the decline of other key drivers of the rise and fall of empires.)
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