The Changing World Order

May 31, 2024

The Changing World Order

Introduction

  • Future times will be radically different, historically consistent with past cycles.
  • Insights drawn from 50 years of global macroeconomic investing and studying 500 years of history.
  • Inspired by major historical shifts in Dutch, British, and U.S. empires.
  • Detailed studies presented in the book "Principles for Dealing with the Changing World Order".

Key Historical Lessons

  1. 1971 U.S. Debt Default

    • U.S. ran out of gold, defaulted under Nixon.
    • Similar to 1933's currency devaluation under Roosevelt.
    • Historical pattern: more printing of money leads to inflation and rise in asset prices.

  2. Predicting Economic Patterns

    • Studying past economic cycles helps to understand future crises.
    • Examples: Roaring Twenties -> Great Depression; 2007 bubble -> 2008 bust.

Modern Factors Indicating Change

  1. Insufficient Funds and Money Printing
  2. Internal Political and Social Conflicts
  3. External Conflicts Between Major Powers

Concept of an Order

  • Internal Orders: Governance within countries (constitutions).
  • World Orders: Governance between countries (treaties).
  • Changes typically following wars (civil and international).

Historical Case Studies

  1. Dutch Empire (circa 1600-1750)
  2. British Empire (circa 1700-1950)
  3. U.S. Empire (circa 1950-present)
  4. Chinese Dynasties (600 A.D. onward)

Empire Life Cycle (Big Cycle)

  • Three Phases: Rise, Top, Decline
  • Each cycle lasts approximately 250 years, with transitions of 10-20 years.

Metrics for Measuring Empire Power

  1. Education
  2. Technology and Innovation
  3. Competitiveness in Global Markets
  4. Economic Output
  5. Share of World Trade
  6. Military Strength
  7. Financial Center Power
  8. Reserve Currency Strength

Typical Events in Empire Life Cycle

  1. Rise: Post-conflict period of peace and growth, strong leaders, innovation, financial development.
  2. Top: Peak financial strength, increased leisure and less competition, growing wealth disparity.
  3. Decline: High debts, internal and external conflicts, loss of competitiveness, increased money printing.

Case Study: Dutch, British, and U.S. Empires

  • Dutch: Financial excesses and wars, eventual decline post-1688.
  • British: Costly wars, decline post-World War II, U.S. domination began.
  • U.S.: High debts, internal conflicts, yet to reach full decline.

Factors Leading to Decline

  1. Economic Weakness
  2. Internal Conflicts
  3. Costly External Wars

Signs of Decline

  • Increasing debts and money printing
  • Populism and political extremism
  • Shifts in military and economic power

Future Prospects

  • Reversing Decline: Possible but requires undoing past excesses.
  • Key Actions: Earn more than spent, treat others well.
  • Monitoring vital signs like a human health regimen.

Conclusion

  • Fundamental principles for longevity: fiscal responsibility and good treatment of each other.
  • Encourages further reading in "Principles for Dealing with the Changing World Order".
  • Continued discourse at economicprinciples.org.