As China goes global a number of countriesâ leaders (and their populations) have been both grateful and put off by Chinaâs acts of generosity and strict punishments. They look rich because they spend a lot, have plenty of assets, and even have plenty of cash.
So gold (and to a lesser extent silver) could be used as both a safe medium of exchange and a safe storehold of wealth. Those findings, as well as the intimate contact my wife and I were having through her philanthropic work with the reality of wealth and opportunity gaps in Connecticut communities and their schools, led to the research that became my “Why and How Capitalism Needs to Be Reformed” study. China, like most countries, was very sensitive about having enemies on its borders.
Theyâre most popularly called âthe business cycle,â though I call them âthe short-term debt cycleâ to distinguish them from âthe long-term debt cycle.â Over long periods of time these short-term debt cycles add up to long-term debt cycles that typically last about 50 to 75 years.2 Because they come along about once in a lifetime most people arenât aware of them; as a result they typically take people by surprise, which hurts a lot of people. 747,32 Kč, 396,71 Kč As far as Chinese money, credit, and the economy are concerned, the history is very long and complicated and went through the full range of money/credit/economic systems and cycles that were described in Chapter 2 and its appendix, so what happened in China is basically the same as what happened all around the world through the millennia, though exactly when and exactly how is a bit different. I did this study by researching deeply with the help of my research team and triangulating with the some of the most knowledgeable Chinese, American, and non-American scholars and practitioners on the planet. While I can be pretty sure about my impressions of the people and things that I had direct contact with (which makes me a lot more certain about the assertions I am making about the Chinese than about the Dutch and British empires I described earlier in this book), I of course canât be as certain about the people and circumstances that I havenât had direct contact with. On Thursday September 24th, Iâll be releasing the follow-up chapter to this one, which is about US-China relations and wars. Second, this group of countries excludes what I will call the âboutique countriesâ (like Switzerland and Singapore) that score very high in wealth and living standards but arenât large enough to become one of the biggest empires. We probably have it somewhere.
In other words, using market values of what one owns to measure oneâs wealth gives an illusion of changes in wealth that doesnât really exist.
They are caused by a number of forces, most importantly money and credit cycles. When the holders of debt assets try to make the conversion to real money and real goods and services and find out that they canât, this problem surfaces. When the debt problems and other factors led to bad economic times at the same time as the wealth and values gaps were large, that produced a lot of internal conflict that led to large, revolutionary changes in who had wealth and power and the processes for getting them. That common currency, just like the worldâs common language, tends to stay around because the habit of usage lasts longer than the strengths that made it so commonly used. Those who build empires allocate resources well by coordinating their economic, political, and military forces into a profitable economic/political/military system.
Now see how we are interconnected and what changes in conditions might mean for you and others who might affect you. So, if you can take your understanding of your own income, expenses, and savings, imagine how that applies to others, and put them together, you will see how the whole thing works. Initially the Chinese werenât involved in the fighting as they were preoccupied by their own challenges and didnât want to be drawn into a war. While the evolution of empires and currencies is one continuous story that started before there was recorded history, in this chapter I am going to pick up the story around the year 1600. Yet in order to understand the patterns and the cause-effect relationships behind them, I needed to see with a higher-level, bigger-picture perspective and a lower-level, detailed perspective simultaneously, looking at the interrelationships between the most important forces over long periods of time. Coming into the period, there were concerns that too quick a return to convertibility would result in a run on the pound, as savers and traders shifted to holding and transacting in dollars all at once. In contrast countries that donât have reserve currencies are especially prone to finding themselves in need of these reserve currencies (e.g., dollars) when a) they have a lot of debt that is owed in the reserve currencies that they canât print (e.g., dollars), b) they donât have much savings in those reserve currencies, and c) their ability to earn the currencies they need falls off. In these big debt cycles there were stable periods when debt growth wasnât excessive, bubble periods when debt growth was excessive relative to levels that could be sustained, debt crisis periods when there wasnât enough money to service debt, and printing of money periods in which money was printed to alleviate the debt crises, which produced hyperinflations. While nearly impossible to anticipate, these changes are not totally impossible to anticipate because whoever is in charge will be faced with the challenges that now exist and that are unfolding in the Big Cycle ways we have been discussing.
When the markets and the economy sag they give them shots of the money and credit stimulant to pick them up, and when theyâre too hot they give them less stimulant.
In 1934, there was severe famine in parts of Japan, causing even more political turbulence and reinforcing the right-wing, militaristic, nationalistic, and expansionistic movement. By studying further, I figured out why, and I learned something valuable that would help me many times in my future. Seeking to explain the cause-effect relationships behind these conditions, he began a study of analogous historical times and discovered that such combinations of conditions were characteristic of periods of transition, such as the years between 1930 and 1945, in which wealth and power shifted in ways that reshaped the world order.
Some people who struggled through them have even described these very difficult times as bringing about important, good things like drawing people closer together, building strength of character, learning to appreciate the basics, etc.
The most recent analogous time was the period from 1930 to 1945. So did other central banks. Over the next several years in Russia internal political fighting and fears of Nazi Germany led to purges of hundreds of thousands of people who were accused of spying and shot without trials.
From 1972 through the late 1970s, China did a better job of restraining money and credit.
As a result of this success they got rich. These are double-edged swords because while being marginally harmful to Chinese markets and listed companies they also weaken American investorsâ and American stock exchangesâ abilities to be competitive, which will support the development of those in China and elsewhere. The quicker the printing of money to fill the debt holes, the quicker the closing of the deflationary depression and the sooner the worrying about the value of money begins.  A good example of this is the popularity of the Patriot movement in the Netherlands around this time: Encyclopedia Britannica, The Patriot movement, https://www.britannica.com/place/Netherlands/The-18th-century#ref414139. 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. Itâs like fashionâthe width of ties and the lengths of skirts. That borrowing typically sustains its power beyond its fundamentals by financing both domestic over-consumption and the military and wars that are required to maintain its empire. The confluence of these three factors piques my curiosity and most draws my attention to similar periods such as the 1930-45 period and numerous others before that. I had conversations with the top Chinese holders of this debt as did David McCormick (who is now CEO of Bridgewater and was then the US Treasury Undersecretary for International Affairs) and Hank Paulson (who was then US Treasury Secretary). They speak for themselves. As you can see, all three of these rises and declines followed the classic script laid out in Chapter 1 and summarized in the charts at the beginning of this chapter, though each had its own particular turns and twists. This is an appendix to Chapter 2, âThe Big Cycle of Money, Credit, Debt, and Economic Activity.â It is intended to look at the concepts expressed in that chapter in a more granular way and to show you how these concepts are consistent with the actual cases that are behind the concepts.
In order to make the most important concepts easy to understand, I will write in the vernacular, favoring clarity over precision. Believe me, the lessons learned from these histories are now guiding Chinese leadersâ decision making. For example, before interest rates hit 0% and central banks printed money and bought financial assets in response to the 2008-09 financial crisis I had studied that happening in the 1930s, which helped us navigate that crisis well. Providing the information this way allows you to get the gist of how I believe these rises and declines work by reading Part 1 and then to choose whether or not to go into Part 2 to see these interesting cases individually, in relation to each other, and in relation to the template explained in Part 1.
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