For any country, the more items it has on the left, the more it is likely to ascend; the more items it has on the right, the more it is likely to decline. They and most other stats are extremely impressive. By this time the dollar was having its own set of balance of payments and currency problems, but that is for the next installment of this series when I turn to the United States and China. They come about for basically the same reasons, typically in cycles, and often in cycles that are as long or longer than our lifetimes. Debt is a promise to deliver money, so giving more money to those who need it lessens the debt burden. Also notable, a) China’s 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. They tend to go together because when people have more money and credit they are more inclined to spend more and can spend more. I’m told that there is a significant chance that the US would lose wars against China and Russia in their geographic areas of strength—or at least would be unacceptably harmed—and would also be unacceptably harmed by some second-tier powers. The chart below shows you the relative wealth and power of the 11 leading empires over the last 500 years.1 Each one of these indices of wealth and power is a composite of eight different measures that I will explain shortly. Since then the quantity of US gold reserves has remained virtually unchanged and the value of these reserves has changed with changes in its market price. As shown below, the downward pressure in currencies and upward pressure in gold started in 1968 and was made official on August 15, 1971, when President Nixon ended the Bretton Woods monetary system, leaving the Type 2 monetary system in which the dollar was backed by gold, and going to a fiat monetary system. China’s central bank will soon be the first major central bank to propose a digital currency, which will make it more attractive to use. At the same time, dollar-denominated debt owed by non-Americans (i.e., those in emerging markets, European countries, and China) is about $20 trillion (which is about 50% higher than what it was in 2008), with a bit less than half of that total being short-term. All this is happening at the same time that there are big wealth and values gaps and there is a rising world power that is competing with the leading world power in trade, technology development, capital markets, and geopolitics. Soon people treated these paper “claims on money” as if they were money themselves. They occurred in the archetypical ways that were described in the earlier chapters. As with the archetypical debt cycle, which I outlined in Principles for Navigating Big Debt Crises, this big cycle represents the archetypical one that we can compare others to, including the one that we are now in. As shown in the chart below, China’s silver-based currency rallied sharply relative to gold (and gold-linked currencies) near the end of the war as prices rose and then mechanically devalued as silver prices fell sharply amid the post-war deflation in the US. A new study on the rises and declines of past leading empires that puts today’s economic, political, and policy situation into perspective of the big picture. To create more wealth, one has to be more productive. As a result of that the Chinese are now holding about $1.1 trillion of US debt, which is about a third of their total reserves though less than 5% of US debt. At the same time, as we will see when we delve into China’s picture, China has gained on the US in all these areas, has become comparable in many ways, and is advancing considerably faster than the US. While we consider information from external sources to be reliable, we do not assume responsibility for its accuracy. World War II was an extremely costly war in lives and money. Madame Gu knew the Chinese official who was in charge of relations with Taiwan and arranged for me to meet with him to help me understand the Chinese perspective. Below are charts that show our indices of the eight most important powers of the United States and China. Ray Dalio's ongoing flow of research and perspectives about the economy, markets, life and work. China suffered from civil war, poverty, and a famine in 1928-30. Because dollar-denominated debt was considered as good as gold, convertible into gold, and higher-earning because it provided interest (which gold didn’t provide), central banks shrank their gold holdings relative to their dollar-denominated debt holdings from 1945 until 1971. It most obviously exists in advanced semiconductors, though it exists in other technologies as well. While there are pros and cons to these different cultural approaches to handling things and I’m not going to explore them here, I do want to get across that the cultural differences that make Americans Americans and the Chinese Chinese are deeply embedded in them so one can’t expect the Chinese not to be Chinese and Americans not to be Americans.

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