Summary of The Changing World Order by Ray Dalio

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  • Post last modified:February 2, 2024

Chapter 9: The Big Cycle Rise And Decline Of The Dutch Empire And The Guilder

The Dutch rose as the previous world order led by the Habsburgs collapsed.

The Dutch gained independence from the Habsburg from Spain in 1581. The Dutch World Order came to be in 1648 after the Peace of Westphalia, and the empire definitely ceased to exist in 1795.

The Transition from the Spanish/Habsburg Empire to the Dutch Empire

From 1519 to 1556, the Habsburg Empire was made out of Spain, Austria, Germany, Belgium, Italy, and the Netherlands, and was the most powerful empire in the world (especially in Spain), ruled by Charles V.

The empire began to decline due to the rise of Protestantism and revolutions against power.

Charles signed a peace treaty in 1555 then divided his empire into two, (Germany on one hand, and the rest on the other) which he gave to his two sons.

Then the Empire followed the classic decadent scheme:

  • Military overextension
  • Bad finances
  • Inflation
  • Internal conflicts
  • Decadent leadership

The Rise

The Netherlands gained its independence in 1581 from the Habsburg, but they’d still keep on fighting for many years after (until 1648).

To punish them, the Habsburgs stopped trade with the Netherlands which forced the Dutch to open their own trade routes.

The Dutch society was open and inventive, which led them to innovate in a lot of domains. They made roughly 25% of all discoveries in the world.

Among these were capitalism as we know it, and better, faster boats.

The Capital Markets Cycle of the Dutch

The Dutch invented equity and the stock market with the first publicly traded company, the Dutch East India Company in 1602.

This made the country really rich. Since they had better boats, they beat the Spanish and Portuguese at trade, and obtained many routes.

Because there were 800 different coins, the Dutch invented the Bank of Amsterdam, an organ tasked to protect the merchants by exchanging these coins against one unified currency: the Dutch guilder.

Merchants that wanted to trade with the Dutch had to open an account in Amsterdam. The size of the Dutch trade empire, the fact that the guilder was 100% backed, and the promotion of its use made it the first world reserve currency.

The New World Order: The Thirty Years’ War and the Peace of Westphalia

The 30-year war lasted from 1618 to 1648.

The war opposed the Catholics from the Habsburg Empire and the Papal States, against the German Protestants nobles, allied with the Netherlands, Denmark, Sweden, and France (France, while being catholic, was an enemy of the Habsburg, so, they supported the Protestant revolution).

The Habsburgs lost. The Peace of Westphalia established borders, which decreased the power of the Church, as well as the frequent redrawing of maps within Europe.

The emergence of nations led to nationalism.

The war had been so exhausting that everyone was sick of it. 25% of people in Europe died because of it.

  • Wars are costly for everyone, both winners and losers.

The Dutch came out of this war reinforced, while both France and the Habsburg were weakened.

The Top

Rich, the Dutch became more interested in consuming than producing. The arrival of the Enlightenment combined with capitalism led to the industrial revolution, happening mainly in Britain.

As for the Dutch, their education lost quality; they became uncompetitive; they could no longer maintain their empire; more military conflicts led them to become indebted and militarily overextended; they lost the Fourth Anglo-Dutch War (1780-1784) to the British, which made the guilder lose its appeal.

In 1688, William III of Orange (Dutch) married Mary II (British). William III subsequently invaded Great Britain and took power. For a while, the Netherlands was allied with the UK.

Since GB became more competitive, Dutch merchants left Amsterdam for London, which advantaged the UK.

The alliance enabled the British to access the Dutch trade routes. When William III died without kids, the nations broke away.

By 1750, Britain had learned from the Dutch and became better.

The Decline

By 1750, the British and French were stronger than the Dutch.

The Dutch were weakened by:

  1. Too much debt
  2. Internal fighting over wealth and power
  3. Weak military

The British retaliated against the Dutch after they helped the Americans during their revolution. The Dutch East India Company lost its trade routes and had to borrow to stay alive.

The Bank of Amsterdam printed money, people went to exchange the money for gold, and the guilder lost all of its power.

The British pound replaced the guilder and France conquered the Netherlands (1795).

The Dutch Empire ceased to exist.

Chapter 10: The Big Cycle Rise and Decline of the British Empire and the Pound

The rise of a country starts before it becomes dominant. Likewise, the decline of a country extends long after another great power has overtaken it.

While the fall of the Dutch enabled the British to take place already in 1750, they didn’t peak before Napoleon was defeated in 1815.

Britain’s rise started in 1600. The Peace of Westphalia had created a new order (the Dutch one) while the British were struggling with the English Civil War (the parliament VS the king) that ended in 1651.

The King Charles I lost and was executed, and GB was directed by Oliver Cromwell.

The conflict established rule of law instead of the rule of the monarchy.

This led the system to become meritocratic instead of based on who the king liked and didn’t like.

Meritocracy had been widely influenced by the Enlightenment.

Debate was encouraged, the education improved, new ideas spread due to the printing press, which enabled the creation of the public sphere.

The system gained strength politically and intellectually while its financial power rose. The UK created a centralized tax system which enabled it to get twice as much tax as France.

The Bank of England was created in 1694.

The Industrial Revolution

Education + capital = new ideas and tech = prosperity.

First, agriculture was modernized which led the price of food to fall. The population boomed and moved en masse to cities where they worked in factories, which led the economic output to rise.

The revolution spread and Europe shifted from an agricultural society to an industrial one.

The UK developed an enormous navy which enabled it to establish trade routes and take over other EU countries’ colonies.

London became the world financial center and the British pound, the world currency reserve.

Why Not France

All indicators tended towards France becoming as great of a power as GB.

When France established its own “East India Company”, the price of the shares became a bubble. The bubble exploded and a new law prohibited charging more than 5% of interest when lending money.

As a result, companies did not have the capital they needed to develop.

Then wars damaged finances even more.

The monarchy wasn’t suited for economic development, and people started to protest for more freedom as the Enlightenment was making its way into the country.

Entered Napoleon

Chaos, wealth gaps and dissatisfaction opened the road for Napoleon. He led a coup, became emperor, and reformed the entire country.

Napoleon won a lot of battles, became overconfident, overreached, and was eventually defeated.

A New World Order: The Congress of Vienna

The Congress of Vienna was for the British what the Peace of Westphalia had been for the Dutch: the beginning of a new world order.

The purpose of Vienna was to establish a new balance that would prevent new wars in Europe.

British Power Approaches Its Peak

The UK was the big winner. No wars meant it didn’t have to spend money on expensive military campaigns and could focus on trade, which enabled the country to become even wealthier.

The rest of its rivals were weakened (Austria, Russia, Germany, France etc) so it had the entire world for itself.

The Top

At their peak in 1870, the British produced 20 percent of the world’s income, controlled 40 percent of global exports, 20 percent of the world’s landmass, and 25 percent of the world’s population.

60% of global trade was in British pounds between 1850 and 1914.

The Decline

The decline happened as all declines do.

  1. Decline in competitiveness.
  2. Internal conflict and rising inequalities.
  3. Rise of other great powers, namely the US (the next empire) and Germany

The UK lost its edge during the Second Industrial Revolution, which saw the invention of synthetic, electricity, the use of petroleum, the invention of the telephone, etc.

Germany and the US were at the forefront and the UK couldn’t keep up.

By the 1890s, the top 1% in the UK owned 70% of all wealth. The top 10% owned 93%.

The gap in wealth inequalities coincided with the peak of the British Empire. What follows was its downfall.

The UK also faced growing competition abroad, with France in Africa, Russia in the Middle East, and the US in America.

The biggest competitor was Germany. Back in 1815, Prussia was still divided. By the end of the 19th century, it had assembled into a big country under the leadership of Otto von Bismarck.

Germany simultaneously established research institutions, led credit flow, rewarded innovation, etc.

Germany’s share of world output increased from 5% to 13% from 1860 to 1900.

The UK competed with Germany which itself competed with Russia and Austria, who themselves competed with other powers.

The war eventually broke out in 1914 and it was monstrous.

It killed 21.5 million people, exhausted Europe, led Russia into a communist revolution in 1917, then the Spanish flu killed an additional 20 million people.

The victors (France, UK, Italy, Japan, US) met in Versailles for the Treaty of Versailles.

While the Congress of Vienna made sure no other war would break out, the Treaty of Versailles did the exact opposite.

It forced the losers of the war to repay. Crushed under debt, they had difficulty developing while the rest of the world experienced “the roaring twenties”.

Then the Great Depression happened, leading to large wealth gaps, which led to populism and extremism.

Wealth was redistributed in the UK and the US, but dictators seized power in Italy (Mussolini), Japan, Germany (Hitler), and Spain (Franco).

WWII eventually happened. Germany and Japan lost. The US, UK, and the USSR won, though the USSR and the UK were devastated – while the US was more powerful than ever before.

The new winners determined a new world order in 1945 during the Potsdam and Yalta conferences.

The British were left with an Empire more expensive to maintain than it was profitable, huge war debts, and an exhausted population.

The pound lost its power until 1967 when it was definitely devalued.

Europe After 1945

Powerful like it was, the US was the defacto leading world power, which created tensions with the second one, the USSR. The US created the defense alliance NATO, and the USSR, the Warsaw Pact.

The US was tasked to resolve world conflict through the establishment of the UN in New York after the failure of the League of Nations in Switzerland.

The Bretton Woods monetary system (1944) established the dollar as a reserve currency.

The IMF and the World Bank were designed to support the new financial system.

New York replaced London as the new global financial center.

Europe, which had been leading for the last 800 years or so, was dwarfed. There was a need for European unity to face the new giants, namely the US and the USSR (and later, China).

The EU was established to make war “not only unthinkable, but materially impossible”. The purpose of the founding fathers (Schuman etc) was to create some sort of European Federation, which began with the European Coal and Steel Community.

The economic integration led to political integration, and EU countries opened doors to each other, with more countries joining.

Today, Europe has a big debt, low inventiveness, important internal conflict, and its military is weak.

It has become a second-world power.

Chapter 11: The Big Cycle Rise And Decline Of The United States And The Dollar

The US began to rise in 1750 to reach peak power in early 1900, topped in 1950.

It is currently declining as China is rising.

Overall, all the indicators are down, and projected to keep on declining.

image 12
Illustration from the book.

The Rise

The US went through a post-revolution period ideal for the rise of a country in a remarkably peaceful way.

After its revolution in 1765, the US became independent in 1776.

It created ideal conditions and good educational infrastructures for the rise of the country (with a notable pause during the Civil War).

The ascent really started in the 1800s, after the US Civil War (1861-1865) and before the Second Industrial Revolution.

The gains of that revolution were financed with a capitalist system where money was flowing freely.

This led to social-economic inequalities which were decreased with high taxes and the break up of monopolies.

The Long Ascent of the Dollar and US Capital Markets

In the beginning, the US did not have a central bank. Banks lent more money than they had, which led to the boom-bust cycle.

Banking panics were frequent.

New York became an established trading center long before it became the main one.

Banks innovated to solve problems that arose due to the growing importance of New York in the financial world scene.

The economy boomed, fed by capital coming from Europe.

The second period of the 19th century was extremely productive, created wealth, but also inequalities. The debt bust happened in 1907.

In 1913, the Federal Reserve was created to mitigate the boom-bust cycles.

In 1910, the US stock market was bigger than that of the UK.

WWI considerably weekend European currencies. The US was the only country to keep convertibility to gold during the war.

After the war, the US took a big role in shaping the new order with the Treaty of Versailles.

The post-war period of peace and productivity led to the inflation of assets due to excessive borrowing. The Fed tightened the borrowing in 1929, which led to the Great Depression.

All nations suffered, and people were fighting over wealth both between and inside countries. This set the basics for WWII in 1939.

1945 established a new world order where the US was the big winner, due to not being concerned with any fighting on its territory (except for Pearl Harbor).

The Top

In 1945, the US emerged as the de facto leader. The UK was bankrupt, Germany, Italy, and Japan were devastated, like France. China was in the midst of a civil war.

Russia rose until 1980 when it began its decline, while China began its ascent.

Because international relations rest on raw power, NATO and the Warsaw pact emerged.

While the US remains today the dominant military power, there are many scenarios where they would lose if they were to face China.

  • Military spending takes government money away from social programs. Since they also depend on technology, the biggest risk for the leading powers is that they lose the economic and technology wars.

The Post-War Monetary and Economic Systems

  • Transactions between countries are very different from transactions within countries.

Bretton Woods made the US the world reserve currency due to its power, and the size of its economy.

Also, nobody wanted to use any other currencies.

The Fed controlled where the US money was going, and the US poured a lot of it into Europe and Japan for reconstruction (and to avoid having them fall into communism).

After the war, the economy boomed in the US and the stock market went on a mega bull cycle.

The stock market peaked in 1966, which was the end of good times.

The US was spending too much on wars. In the 60s, real GDP growth was at 0%. Americans didn’t realize they had to stop spending. So, they didn’t.

The 1970s: The Balance of Payments Problem Unfolds—Low Growth, High Inflation

The US printed too much money so it defaulted in 1971, then Nixon broke up the accord of Bretton Woods in 1973, and the US dollar, once backed by gold, became paper money.

Money was no longer constrained and a decade of stagflation started.

Meanwhile, Japan and Germany became competitive and could produce cheaper, better products, which led to economic difficulties in the US.

Most Americans had never experienced inflation. At the end of the decade, they were traumatized by it.

The 1979–1982 Move to Tight Money and Conservatism

Conservatives were elected during this period to limit inflation (Reagan, Thatcher, etc).

  • Economics and politics have swings between the left and the right in varying extremes as the excesses of each become intolerable and the memories of the problems of the other fade.

The world plunged into an economic recession of the likes of 1929. Mexico defaulted on its debt in 1982.

The Disinflationary and Booming 1980s

Inflation eventually decreased, and the stock market boomed. The debt-restructuring process went well.

Overall, the US going off the gold standard led to inflation, which led to restricting money printing, which led to currency strength, which led to falling inflation.

1990–2008: Globalizing, Digitalizing, and Booming Financed by Debt

The Soviet Union never could catch up with the US due to its disastrous economy. The country collapsed in 1991 and everyone moved away from communism, which had failed everywhere.

Since then, there were three economic cycles:

  1. One that peaked in 2000 with the Internet bubble
  2. One that peaked in 2008 with the real estate bubble
  3. One that peaked in 2019 just before the virus

During that period, China rose, and technology replaced people which was good for productivity but which widened social-economic gaps.

Factories moved to cheap countries which enabled them to develop (mainly China).

Overall, tech improvements (robots) and Chinese workers replaced the middle-class in developed countries, especially the US.

  • Most people pay attention to what they get instead of where the money used to buy stuff comes from. This encourages elected officials to spend a lot of borrowed money to give voters what they want. This creates problems down the road.

There are three types of monetary policy:

  1. One led by interest rates
  2. One led by buying financial assets with printed money (quantitative easing)
  3. One where the government issues bonds bought by the central bank

The 2008–2020 Money-Financed Capitalist Boom

After the crash, interest rates were at zero, which fueled a boom in financial assets, which were mostly owned by the rich, so social-economic inequalities widened.

This led to Trump in 2016. Trump cut taxes and ran a large deficit financed by debt, which worsened social-economic differences.

Meanwhile, the country became divided politically.

When the virus hit, all world governments borrowed even more.

  • When there is a great increase in money and credit, it drives down the value of money and credit, which drives up the value of other investment assets.

As a result, the stock market boomed.

Where the US Is Now in its Big Cycle

The US is 70% in its own World Order, and has not yet entered Stage 6, with a civil war.

Politically, the population is much more at the extreme, which increases the chances of internal conflict.

The main three indicators for the beginning of Stage 6 are:

  1. Disregarding the rules.
  2. Groups attacking each other.
  3. Blood.

Chapter 12: The Big Cycle Rise of China and the Renminbi

(This chapter is about China’s history and isn’t really relevant to the rest of the book. You can skip it).

image 13
Illustration from the book.

Unlike the other empires we’ve studied, China has been declining for the past 200 years.

Seven powers hit their lowest point in 1950, and most of them have been rising ever since.

Today, China is strong everywhere but is lagging as a reserve currency and financial center.

Chinese history has been a tale of ascent and decline. It began some 2000 years before Christ.

image 14
Illustration from the book.

China became a great power several times, and decadent several times too.

The last dynasty was the Qing. They led China during the Century of Humiliation, which began in 1839 and ended in 1949.

At the beginning of the 19th century, the British arrived in China seeking trade. The First Opium War happened (we explain below why) and it considerably weakened China, which declined until the end of the Qing in 1912.

China was also heavily influenced by Confucianism, which favors scholarship over commerce, technology, and military strength.

China VS America

Chinese history is old and well-documented. The Chinese know about the cycles and revolutions, so they are prepared. Americans, don’t.

The Chinese think differently about the present and the future, and know they must expect anything.

The Americans believe they’ll always live the way they do.

The Chinese plan for the future, a hundred years ahead. The Americans do what they want now.

The first phase of the Chinese Cycle was under Mao. The second phase was under Deng Xiaoping, when he built China’s economy.

China’s Lessons and its Ways of Operating

Chinese culture is a mix of their experience and lessons.

  • Confucianism: a philosophy that seeks to bring harmony within the system. It starts with the family, up to the country. Super hierarchical, everyone respects those above them.
  • Legalism: favors the rapid conquest and unification of all things under one leader. View of the world is “kill or be killed”. Western equivalent of fascism.
  • Taoism: highlight the importance of living within the laws of nature. Nature is made out of opposites that must be balanced.

China put the group over all else while the US put the individual above all else. The Chinese sought more to control and defend their land than to annex others, which is why they didn’t have colonies and were prone to isolation.

They don’t like to fight. They believed the best way to fight is to become extremely powerful so the enemy doesn’t attempt to do war.

China’s Monetary and Economic History

China has been through the same cycles as everyone else.

The currency they used was silver.

While most nations had global reserve currencies, China never did.

The first reason is that leaders weren’t as interested in commerce as much as the Europeans. The second is that investments didn’t play a massive role throughout the dynasties either.

In the 1920s, debt grew, so paper money was debased and controlled.

  • When you see capital controls being put on a currency, especially when there is a big domestic debt problem, run away from that currency.

Let’s now have a look at Chinese history from 1800 until now

The Decline from 1800 until 1949

China’s decline began when the dynasty became weak and decadent while EU countries became strong (particularly GB).

Great Britain sought tea, silk, and porcelain from China, but the Chinese weren’t interested to buy anything from the British.

When the British ran out of silver to buy in China, they smuggled opium into the country sold for silver, which helped them keep on buying tea, silk, and porcelain.

This led to the First Opium War. Britain won, obtained Hong Kong, and forced the Chinese to open their ports for trade. Japan obtained Taiwan.

China subsequently borrowed from Western countries to deal with protests at home, which made its situation even worse.

Looking at it in this way, we can understand why Mao thought that capitalism was evil.

Britain had forced its way into China and exploited Chinese workers “for trade”.

Communism seemed the obvious solution to avoid such a fate in the future.

At the end of WWII, most foreigners left China where the communists and capitalists were fighting to determine how wealth would be redistributed.

Mao won in 1949.

The Rise from 1949 until Now

The evolution of China from 1949 to now happened in three phases.

1. Mao (1949-1976): Building the foundation.

Mao ruled over China like a communist emperor. He built the institutions and kept a classic communist system. The land was redistributed and most businesses were nationalized.

The Chinese economy grew but the country remained extremely poor.

While China had had the backing of the USSR so far, the Soviet Union became an enemy in 1960 with the coming to power of Nikita Khrushchev.

In 1958, Mao attempted to establish the Great Leap Forward, which was a catastrophe and led to the death of roughly 40 million people.

The economy contracted by 25%.

The economy recovered until the Cultural Revolution. The Cultural Revolution was Mao attempting to secure more control over the country in order to prevent a coup. It also killed a lot of people, roughly 20 million.

By 1971, Mao’s health declined. Meanwhile, the Soviet Union had grown increasingly more threatening to China, so China allied with the US.

Nixon went to China in 1972, and China’s communist regime was recognized by the international community.

Mao died in 1976. Two groups, reformists and hardliners, opposed each other for 2 years. The reformists won and Deng Xiaoping came to power.

2. Deng Xiaoping and his heirs (1978-2012): Building China peacefully

Deng Xiaoping reformed China and introduced capitalism. China became much stronger and gained considerable power.

Xiaoping was obsessed with economic reforms and opening China up to foreign investors.

He created a 70-year plan with ambitious socio-economic goals.

He also reformed the political system to make it less dependent on one person, and introduced the Politburo who voted when a consensus couldn’t be reached.

He forbid leaders from doing more than two five-year terms, and encouraged consensus instead of dictatorial decisions. He also reformed the constitution to facilitate foreign investments.

A democratic movement arose in 1989, and was matted by Xiaoping. However, he did not go back to Mao’s days, and kept on reforming.

Jang Zemin then Hu Jintao succeed Xiaoping with the same politics. They also negotiated to take Hong Kong back from the British and Macau from Portugal.

Meanwhile, the US and China’s relationship grew. US manufacturers produced in China, sold to Americans, and Americans borrowed dollars from the Chinese to maintain their overconsumption.

The bubble eventually exploded in 2008. The middle class got hurt, especially as their jobs moved to China. The rich got even richer, so a populist wave took over politics.

The G20 met in Washington and agreed to print money to stimulate the economy.

In China, debt grew much faster than the economy.

3. Xi Jinping (2012-now): Becoming a World Power

When Xi Jinping took control, China was becoming indebted, corrupt, and grew more threatening to the US.

Xi decreased debt, reformed the economy, led an anti-corruption purge, reduced inequality, expanded China’s power outside (Eg: the Belt and Road Initiative), and controlled power at home.

While China sought to grow without any powerful ambitions, this changed with Xi. China wants to become the world leader in a lot of economic categories where the US is currently the world leader, which creates friction.

China wants to emancipate itself from the US. The US wants to contain it.

China is now a major and expanding power.

Let’s have a look at its relations with the US.

Chapter 13: US-China Relations and Wars

The Positions the Americans and Chinese Are in

The positions the two countries are in are due to the Big Cycles.

The US is at the end of its empire time, while China is at the beginning.

The first thing we need to highlight is that the US is an overly indebted country mainly held by China.

  • Countries succeed when they can sustain the strengthening forces without being decadent. The most successful countries did this for 200–300 years. No country has been able to do it forever.

There are five major types of wars. We will add two more:

  1. Trade wars
  2. Technology wars
  3. Geopolitical wars
  4. Capital wars
  5. Military wars
  6. Culture wars
  7. War with ourselves.

These wars are increasing. They should not be considered random information data points, but small conflicts that eventually lead to an all-out war.

The Trade/Economic War

The trade war so far included tariffs and import restrictions. This war has been more of a test of power than anything else.

The US accuses China of the following:

  1. Interventions led to protecting its domestic market.
  2. The Chinese government works hand-in-hand with its companies, including when it comes to espionage and security.
  3. The Chinese are stealing intellectual property.
  • When things are not going well, leaders don’t hesitate to do stuff previously considered immoral.

The war will likely escalate.

It could escalate when one country cuts off essential imports for the other: eg: oil, rare earth materials, etc.

It’s a clear sign that an all-out war is about to happen.

The result is that countries want to rely less and less on others and more on themselves -> shift to domestic production.

The Technology War

The tech war is important as whoever wins it would likely win an all-out war too.

China has become much better in tech, but is still dependent on the US. The US is leading in tech, though not everywhere. Overall, its lead is declining.

Since China leads in computing power, AI, and data, they are likely to develop technology faster than the US due to better decision-making.

To retaliate, the US has been limiting access to some tech companies like Huawei.

The Geopolitical War

Sovereignty (Hong Kong, Taiwan, the South East China Sea, etc) is the biggest issue for China.

The Century of Humiliation is a big reason for that. China doesn’t dictate how the US treats its citizens and can’t stand when the US or the EU does so.

The most dangerous issue is Taiwan.

The Chinese don’t believe the US will allow reunification with Taiwan. As a result, they want to be sufficiently powerful to deter the US from engaging militarily.

Would the US fight? Doing so would be at great cost. Not doing so would also be at great cost.

The Capital War

One of the biggest risks that can ignite a conflict is that the capital is cut off. Since money = power, no money = no power.

Countries use sanctions to cut off capital.

By printing the world currency, the US decides who gets to use it – and who doesn’t.

However, the US is at risk of losing this privilege because:

  • The amount of dollar-denominated assets in foreigners’ portfolios is too large for what it should be.
  • The Fed and the US government are printing a lot of money, which makes it unattractive to hold.
  • Holding debt is less desirable during wartime than in peacetime.
  • Since the US can prevent someone from using their money, holding debt in dollars may be dangerous.
  • The US dollar is a reserve currency mainly because it can be used freely between countries. If the US starts to impose sanctions, the US dollar attractivity would decline.
  • Countries targeted by sanctions have sought to go around them by developing alternative payment systems.

At the moment, there are no good alternatives. The USD makes up 51% of all money in existence.

The euro makes up 20%.

To quote the author:

The euro is a weakly structured fiat currency made by smaller, uncoordinated countries with weak finances that are tenuously held together by a highly fragmented currency union. Because the European Union is financially, economically, and militarily at best a secondary power, buying its currency and debt denominated in its currency, which its central bank is free to print, is not an enticing thing to do.

Gold is a dead asset since there are no significant international trade and capital transactions in it and it isn’t used to back currencies anymore.

The Yen has the same problem as the dollars, the pound has the same problem as the euro, and the renminbi makes up for only…2% of all money.

-> at this moment, there are no other attractive world currencies.

  • When currencies aren’t attractive and when there are no other currencies to replace them, the money flows into other types of investment (e.g., gold, commodities, stocks, property, etc). No need for another currency to have all currencies devaluate.

The Military War

  • While impossible to imagine, the next military war will likely be much worse than imagined.

World War III would likely be extremely deadly due to the fact that many technologies of war have never been tested, and that the tech of today is much more destructive than the tech of the past.

  • When countries have big internal disorders, it is an opportune moment for opposing countries to aggressively exploit their vulnerabilities.
  • History has taught us that when there are leadership transitions and/or weak leadership at the same time that there is a big internal conflict, the risk of the enemy making an offensive move is high.

Since the US will likely descend into civil war in the upcoming years, it’s in the interest of China to wait before waging a war.

The Culture War

  • How people behave with each other determines how they react to challenges. This behavior is determined by culture.

Chinese culture is top-down, hierarchical, and collective at the expanse of the individual. Since it’s a communist country, wealth is redistributed.

US culture is bottom-up, individualistic, capitalist, and admires revolutionary thinking.

Chinese and Americans both fail to empathize with each other.

Both of them have their cultures deeply embedded, and will never give it up.

Americans would fight for their freedom of speech, while the Chinese would fight for more for “harmony”.

Eg: when a general manager for an NBA tweeted support for Hong Kong, the Chinese were furious. When he took the tweet down, the Americans were furious.

Americans don’t think the group should be held accountable for the behavior of the individual. Chinese do.

The War With Ourselves

This is the greatest war, as we have the most control over how we are.

The items that make empires great (judged by the 18 determinants) are:

  1. Strong leadership
  2. Strong education
  3. Strong character, civility, work ethic
  4. Low corruption, high respect for the rule of law
  5. People that can work well together
  6. A good resources allocating system
  7. Open-mindedness to adopt the best practices
  8. Great competitiveness in global markets
  9. Strong income growth
  10. Important investments in assets that will make money later (infrastructure, education, research)
  11. Increasing productivity
  12. New tech
  13. Important share of world trade
  14. Strong military
  15. Strong currency
  16. Leading financial center

Because the internal order is the primary cause for the rise and fall of empires, it is important that citizens and politicians ask themselves how well they do with these 16 items.

Part III: The Future

Chapter 14: The Future

When looking at the future, you should:

  1. Determine what’s likely to happen
  2. Protect yourself in case you’re wrong

Dealing with the future is about:

  1. Seeing and adapting to what is happening, even if it wasn’t predicted
  2. Thinking about what may happen (in probabilities)
  3. Knowing enough to protect against the downsides and unpredictable events

The author’s approach to predicting the future is based on:

  1. Evolution, which causes change, generally toward improvement
  2. Cycles, which cause ups and downs
  3. The indicators we have discussed


Evolution helps you predict the future as long as a big unpredicted event does not come to disturb that vision of the future.

  • While predicting the future based on the past, be prepared to be surprised because the future will be much different than you expect it to be.

Based on past data, we can estimate that in the next 10 years, there will be 10-15% more people on earth, the output per person will be 20% higher, wealth will be 30% higher and life expectancy, 7.5% longer.

Cycles and Bumps Along the Way

  • When betting in the market, evolution will naturally tend to get it up, but bumps along the way (crises) will also happen.

Quality Indicators

Let’s have a look at the five most important indicators.

1. Innovation

Innovation goes faster and faster and most people will likely benefit from it.

Quantum computing with AI will create an enormous volume of knowledge that will create great wealth.

2. The Debt Money Capital Cycle

Debts are too large at the moment, so money will be printed to service them. There will be a transfer of wealth from lenders to borrowers because of that.

The value of all currencies will decline.

Wealth will also have to be redistributed.

3. The Internal Order And Disorder Cycle

“The empire long divided must unite and long united must divide. Thus it has ever been.”

Internal conflict is high in the US.

  • Power rules and tests of power are the ways one learns who rules.

So, can a decadent cycle reverse?

Likely no.

It requires undoing things that have already been done, such as consuming less and producing more.

At the moment, the US is deeply indebted, its military is weakening, and its internal order tends towards civil war.

4. The External Order and Disorder Cycle

  • All empires eventually disappear and new ones rise to replace them.

The US and China are clearly engaged in four types of war which are intensifying.

These mini-wars precede military wars usually by 10 years.

However, because of the mutually assured destruction principle (nuclear war), the chances for a US-Chinese war are lower than the chances for peace.

As time goes by though, chances for a war increase because China rises and the US declines.

5. Acts of Nature

Natural disasters are more and more violent and cost more and more.


Out of these five determinants, innovation is the only one we can expect to positively evolve in the future as the four others are deteriorating.

Dealing With What You Know and What You Don’t Know

Success is more a matter of knowing what you don’t know than the other way around.

  • Know all the possibilities, think about the worst-case scenarios, and then find ways to protect yourself against them.

Protecting yourself against worst-case scenarios is liberating since it means that whatever you do…you’re covered.

  • Diversify

You can’t think of all the worst-case scenarios. Therefore, by diversifying, you make sure that you’ve covered as many as possible.

  • Put deferred gratification ahead of immediate gratification so you will be better off in the future.

The more you work for your future, the better the future will be. The more you eat your fruits in the present, the worse the future will be.

  • Triangulate among the smartest people possible.

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