Debt & credit cycles
But first we need to understand the causes of periodic financial crises. Dalio 's views on the ongoing processes - from a historical perspective during hundreds of years - serve as a good guide. Ray Dalio is a billionaire and financial speculator who has funded governments around the world. Therefore, it is vital for him to understand current events and anticipate future ones. He discovered that events happen in cycles. What is happening now in the field of finance and politics has happened many times in the past. Therefore, by studying historical data, it is possible to assess the options for the future development of events.
Having the opportunity to involve various specialists from different countries in the work, it was possible to collect a large amount of data and use the results of computer processing of these data. Ray shares the results of his research. For a number of years, he appeared on TV and published several books. Books and articles are available online.
The figure below shows a graph of the “strength” of the main world empires since 1500.
Until about 1750, the Dutch Empire (Netherlands) was dominant. As a result of the Anglo-Dutch Wars, Great Britain won and dominated until about the 20th century. Great Britain was ruined during the Second World War and lost its colonies. The war, however, enriched the United States, which has been the most powerful country ever since. But the United States is gradually declining, and China's power is rapidly growing.
It turns out that countries (nations or empires) experience similar cycles. First development, then prosperity, and then decline. It seems that the entire "western" world (USA, Europe, Japan, Australia) is now experiencing decline...
Looking at the graph, many questions may arise, such as how the “strength” of empires is measured. Therefore, it would be better to read the book first - or at least watch the animated film: Principles for Dealing with the Changing World Order by Ray Dalio.
Reboot
So, the development of empires (countries, kingdoms, republics...) occurs cyclically. Because these cycles are so important and have happened almost everywhere throughout recorded history, we need to understand them and have “eternal and universal principles” to deal with them well. A large cycle can last longer than a human life. Therefore, people are afraid when, at the end of the cycle, the usual course of life is ruined and economic difficulties, inflation, bankruptcies, polarization of society, revolutions and wars arise.
The reason for this cyclicality is human greed, hoarding, and the desire to secure one’s future. The invention of money (or the use of goods that retain their value for a long time like money) led to the emergence of usury and the accumulation of wealth.
In the initial period, when inequality is low, debt does not burden debtors and the economy develops successfully. This is usually a liberal period in history. At the end of the cycle, inequality is at its highest and debt servicing becomes an unbearable burden for debtors. This situation tends towards tyranny.
Restarting the economy requires eliminating debt (seizure of assets) or reducing it (restructuring). This reduces social inequality since all debt is someone's financial asset. In other words, a redistribution of property is required.
In most historical cases, restarts have been forced violently through wars, coups, or revolutions. And usually it was accompanied by the collapse of the economy. For European countries it was World War II, for the former Soviet Union it was the collapse of the USSR, for the United States it was the Great Depression.
Restart can change the political system, as happened in Russia in 1917, in China in 1948 or in France in 1789. An example of a peaceful restart is the overcoming of the Great Depression in the United States by the team of President Franklin Roosevelt, which occurred without a change in political regime.
Based on available data, there is a suspicion that the USA and the Western world are going to collapse and that CHINA is going to emerge victorious... Or a new political system will emerge in Western countries......
Role of banks
When describing the monetary cycle, Ray Dalio uses the concept of a "bottle" that contains stimulating fluid for the economy. Ray writes:
Think of the central bank as having a bottle of stimulant that they can inject into the economy as needed with the amount of stimulant in the bottle being limited. When the markets and the economy are down, they give them shots of the money and credit stimulant to pick them up, and when they’re too hot they give them less stimulant.
… the ability of central banks to be stimulative ends when the central bank loses its ability to produce money and credit growth to produce real economic growth. That lost ability of central bankers typically takes place when debt levels are high, interest rates can’t be adequately lowered, and the creation of money and credit increases financial asset prices more than it increases actual economic activity.
It is time to figure out what kind of mythical “bottle” the central bank has, on which the economy so much depends.
Usury is robbery?
The global economy is characterized by ever-increasing property inequalities, and rising state debt. This is predetermined by the structure of the usurious financial system.
Money in the economy is created by central and commercial banks lending to the public, to commercial enterprises, and to governments. Private commercial banks lend at interest. In theory, if all the debts were paid back, there would be no money left in the economy, but there would be the debt's interest left unpaid. That should never happen, which is why governments regularly borrow new money. Since most of the money borrowed to pay off the debt is lent out again, the debt grows exponentially.
To pay the growing national debt, the tax burden on the population has to increase. As a result, the debt is still growing, the real welfare of the general population is falling, and the property of the richest is skyrocketing. The population can be considered "interest slaves," because the price of any product or service already includes interest on "money out of nothing".
How much interest do we pay the "money mafia" when we buy any product? 10%, 20%, 30% - or even more? We don't know exactly. It mostly depends on what stage of the large debt-credit cycle the country is in. The only thing that is known for sure is that this percentage only increases from year to year due to the effect of compound interest. So we are all "interest-bearing slaves" to the "financial mafia", even if we have never taken out a loan in our lives.
At the beginning of the cycle, debts are small and servicing them does not slow down the economy. At the end of the cycle, debt service eats up almost all the income of the population, as a result, consumption and production fall. In Ray Dalio's terminology, “the bottle runs out of stimulus fluid” and banks lose their ability to stimulate the economy with loans and new money.
At the same time, the wealth of the rich is skyrocketing, and they want to protect their wealth from inflation. So they buy up whatever they think will keep wealth — gold, real estate, land, art, a stable foreign currency. Accordingly, the prices for all this is growing, which we are seeing ...
This extremely simplified description of the banking and financial system explains why the debts of states and taxpayers are constantly growing. On the other hand, the large fortunes secured by these debts are growing. These debts will have to be paid not only by this generation but also by the next one. Therefore, it is correct to think of this system as a fraudulent pyramid scheme designed to rob the poor in favor of the rich.
Read more about it: Gottfried Feder, "Manifesto for the abolition of Interest slavery".
In the Big Cycle, social inequality and debt burden are dependent variables. High debt leads to greater inequality. On the other hand, the existence of great fortunes requires great resources to sustain their growth - at the expense of the poor.
Bankers have the opposite opinion.
Current tasks
The situation is that the Western democracies are now at the end of a large debt-credit cycle and are threatened with collapse in the near future of history, while China is on the rise. I don't like this situation. It may happen that in the current century the population of the Earth will find itself in a “big Chinese digital concentration camp”. Of course, such a development of events is possible, but not predetermined.
As a maximum task, I am interested in, is what could reverse the unfavorable development of events, restart the “western project” and spread a high standard of living and security for people all over the planet.
The minimum task is to find conditions for the development of countries without financial crises. At least theoretically, for simplicity, assuming that countries are isolated from the global economy. Or - assuming that the entire planet has a single currency, tax policy and government.
Of course, a crisis-free development of civilization is impossible, because there are other cycles, such as the technological cycle. Epidemics and natural disasters also occur from time to time... Overproduction cycles as well as political cycles (associated with a change in the political regime) are closely related to the credit-debt cycle. These cycles overlap each other, creating a confusing picture. Thanks to the research of Ray Dalio, you can be sure that the credit-debt cyclicity is, if not the most powerful, then one of the most important (although there are other theories). The elimination of financial cyclicity would save mankind from many economic cataclysms and wars.
The main reason for financial cyclicity is not the (capitalist) mode of production, but how people handle with money and debt as well as peculiar properties of our usurious financial system. A brief explanation is here.
Therefore, the struggle for development without financial crises is a struggle against human nature. Ray Dalio does not even mention such a task and considers this cyclicality to be “eternal and unchanging laws”. But, as civilization developed, moral norms, laws, religions, state and public institutions developed too, which limited the wild instincts of people and directed them in a creative direction for the common good. An example is the propensity for cruelty and violence. In a civilized society, this propensity is limited and suppressed. Therefore, it can be expected that means will be devised to direct selfish inclinations to the common good and avoid financial crises. Let us not forget that these crises are the main cause of wars and political violence.
Continue: Financial system
Content:
Straitjacket for Capital
Social justice and economic health
Debt & credit cycles
Financial system
Tax Reform
Globalization
Citizens' Dividends
tomy_potter@protonmail.com