The Big Cycles of the United States and the Dollar

From, “The Changing World Order” by Ray Dalio

A cycle that begins with a new world order that comes after a war in which

a) there is an environment of peace, prosperity, and productivity in which debt growth is allocated well and sustainably

(i.e., most debts are used productively to produce incomes that are greater than debt service so most debts are paid back), equities do well, and the society gets rich with individuals benefiting from the prosperity, though they benefit disproportionately, which eventually leads to

b) excessive debt growth to finance speculation and over-consumption, which results in incomes being inadequate to service the debt, which leads to

c) central banks lowering interest rates and providing more credit, which produces greater wealth gaps and more over-indebtedness, until

d) over-indebtedness becomes so large and central banks lose their ability to create credit growth that produces self-funding debt growth (i.e., in which debts don’t accelerate relative to the incomes needed to service them without central bank subsidies), which

e) produces severe economic downturns with large wealth gaps that lead to internal conflict and leads to

f) lots of printing of money, big debt restructurings, and big wealth distributions via tax changes

g) that create financial, economic, and political vulnerabilities for the leading power relative to emerging powers that lead to wars that define the winners and losers and produce the new world order.

The stats seem to suggest that the US is roughly 75% through that cycle, +/- 10%.

Still, this cycle needn’t transpire this way if those in their rich and powerful stages stay productive and safe by continuing to work hard and smart, earn more than they spend, save a lot, and make the system work well for most of the population.

A number of empires and dynasties have sustained themselves for hundreds of years and the United States, at 244 years old, has proven itself to be one of the most durable now in existence.

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