For me, watching what is now happening is like watching a movie that I have seen many times in history. I am a global macro investor whose approach to betting on what is going to happen is to understand the mechanics of how things work by learning the lessons of history. I find that what is now happening has happened repeatedly for the same reasons and that understanding the cause/effect relationships has helped me immensely. I am now in a stage of my life where I want to pass along what has helped me rather than keep it to myself to benefit myself. For that reason, I described the typical sequence of events that leads to the rises and declines of monetary orders, domestic political orders, and international geopolitical orders in my book, Principles for Dealing with the Changing World Order. I call this sequence of events the “Big Cycle” because it is big and long-lasting, typically lasting about 80 years (i.e., about one lifetime.)
The last time these orders broke down was in the 1930 - 1945 period, which led to the 1945 beginning of the post-war monetary, domestic political, and international geopolitical orders that we are now seeing break down. The symptoms that can be used to identify what stage of the Big Cycle we are in and the forces that drive the Big Cycle were comprehensively described in my book. Most importantly, I laid out, in detail, the processes and sequences of events that typically lead to the break down of the monetary order, the domestic political order, and the international geopolitical order so that one can compare the actual sequence of events with that which was laid out in that template.
For readers of the book, it should now be clear that we are on the brink of going from Stage 5 (pre-breakdown of the existing orders) to Stage 6 (breakdowns of the existing orders) of the Big Cycle.
I wrote that book with the intentions of 1) helping policy makers understand the process that leads to breakdowns and prevent them and 2) helping people protect themselves against being hurt by these breakdowns. I did that with the realization that my explanations probably wouldn't have a material effect on the trajectory. They haven’t. Still, as we are now clearly on the brink of crossing from Stage 5 (pre-breakdown) to Stage 6 (breakdown) and choices can be made that can have huge effects on outcomes, I feel compelled to reiterate the highlights of the dynamic that I believe is behind what is now happening and to make clear the choices that can make better or worse outcomes. To do that here, I am now going to briefly share the most relevant parts of what I wrote in Principles for Dealing with the Changing World Order for what’s happening now, specifically the highlights about how Stage 5 (the pre-breakdown of orders period) leads to Stage 6 (the breakdown of orders period). This will allow you to compare what is now happening with my Big Cycle template. To be clear, even though it is unlikely that the monetary order will be fixed via the financial discipline that is required to bring about financial health, and it is doubtful that there will be returns to rules-based domestic political and international geopolitical orders that are essential for peaceful resolutions of disagreements and democracy to work, these improvements are still possible as we haven’t yet gone over the brink from Stage 5 to Stage 6.
What follows are excerpts from the book that paint the picture. After sharing them, I will explain how what I wrote five years ago applies to the current situation (see “Where We Are Now” below).
“Stage 5: When There Are Bad Financial Conditions and Intense Conflict”