Most people are shocked by what is happening in the world. I’m not. I’ve seen this movie before.
As a global macro investor for over 50 years, I have to study the cause-and-effect relationships that drive history before I can place my bets. I have found that all monetary, political, and geopolitical orders rise, evolve, and collapse in a recurring pattern that I call “grand cycles”—generally lasting about 75 years, give or take about 30 years.
I believe that the times ahead will be very different from those that most people have become accustomed to – they will be more like the turbulent times before 1945 than the times we have experienced since the end of World War II.
in my book Principles for responding to a changing world orderI describe the six stages of the Great Cycle. Stage Six is Collapse—a time of great chaos. Phase 5 is the phase immediately preceding it. This is where we are now.
I find that the way I see things now is very different from the way most other people see things because our perspectives are different. As a global macro investor, I have to bet on what the future will look like, and this shapes my view. To do this, I find it extremely valuable to study the causal relationships that have repeatedly driven global macro events over the past 500 years.
From this perspective, watching what’s happening now is like watching a movie that I’ve seen many times before, because the events are happening in the same way that I’ve seen them happen many times before. This perspective has been invaluable to me in my bets, so at this stage in my life I want to pass it on in the hope that it can help others prepare for the future.
Contrary to my opinion, it seems to me that most people were surprised by what happened because nothing similar had happened to them in their lives and because they were focused more on the events of the day rather than on how the monetary order, the domestic political order, and the international geopolitical order evolved over time.
In my exploration of history, I have seen that all monetary orders, domestic political orders, and international political orders begin, evolve, and collapse in a large cycle. For example, I saw how the monetary, political, and geopolitical orders collapsed during the Great Chaos of 1929-1945, how new orders were created in 1945, and how these new orders evolved to bring them and the environment to a level now similar to that of the 1929-39 period. I have also seen how natural disasters (droughts, floods, and epidemics) and the invention of powerful new technologies can have a huge impact on the monetary, political, and geopolitical order, and thus the macrocycles, and vice versa.
The evolution of these orders over large cycles is almost always driven by essentially the same causal dynamics. For example, over this 500-year period, across countries, I repeatedly saw how the growth of debt and debt service payments relative to income drove huge debt/money cycles. This squeezes spending until it leads to debt servicing problems and spending constraints.
I see that when this happens simultaneously, there are large amounts of outstanding debt assets (bonds) and debt liabilities (debt), and large budget deficits that require larger sales of debt assets (i.e. bond sales) than demand, and the resulting supply and demand imbalance causes the value of the debt and/or currency to fall.
I’ve also seen how periods of great domestic and international conflict – especially the pre-war period – can lead to creditors fearing that debtor reserve currency countries will devalue or default on their debts, and I’ve also seen how this can lead these creditors and central banks to shift some of their bond holdings into gold to protect themselves from being repaid in a devalued currency or not repaying those debts at all due to capital wars. What is happening in markets and monetary systems now is consistent with this template.
exist Principles for responding to a changing world orderI describe how these loops occur and collapse. The big crash happens in what I call phase six of the cycle, which is a very chaotic time. The last major sixth phase began in 1929 after World War II and ended in 1945, with clear winners, most importantly the United States, determining how the new order would work. This led to the establishment of a US-dominated monetary, political and geopolitical order. We are now in the new fifth phase, the phase before the collapse. Key markers of progression from Stage 5 to Stage 6 are:
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Large and rapidly growing government debt and geopolitical conflicts have led to concerns about the value and safety of currencies, especially reserve currencies, driving a shift away from fiat currencies and toward gold.
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Wide disparities in income, wealth and values within countries have led to the rise of right-wing and left-wing populism, as well as irreconcilable differences that cannot be resolved through compromise and the rule of law.
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A shift from a world order of dominance and relative peace to a world order that reflects great power conflict.
Throughout history, these conditions have often led to financial problems and conflict rather than compliance with the rules. This is particularly challenging for democracies, which are built on the rights of disagreement and rule-abiding, so when disagreements are high and there is no widespread belief in a rule-abiding system, democracies descend into chaos and authoritarian leaders gain power. For example, in the 1930s, four major democracies (Germany, Japan, Italy, and Spain) became dictatorships.
When these conditions are combined with vast disparities in wealth and values and poor economic conditions, the result is often chaos, conflict, and sometimes even civil war. This dynamic is nothing new. Plato wrote in his book republic 375 BC.
Today we see:
* Huge debt, deficits and fiat currency devaluation led by the US dollar and rising gold prices,
* Growing political and ideological polarity and populism within the country (now known as “MAGA” and “WOKE” in the United States), driven by vast and growing differences in wealth and values manifested in pre-Civil War-type developments, such as presidential deployments of troops to cities and related conflicts, such as that in Minneapolis, and questions about whether elections should be allowed to proceed as normal,
* The collapse of the post-1945 rules-based international order and alliances such as NATO, and the emergence of a new world order that is more like many of the pre-1945 world orders, with great power conflict and gunboat diplomacy-style geopolitical moves, such as what we see with Greenland, Venezuela, Iran and its allies, China and Russia and its allies.
When I look at these historical and contemporary dynamics, I think it is indisputable that what is happening now is more akin to the pre-1945 era than to the post-1945 era that we have become accustomed to, which has misled most people’s expectations and made them shocked by what is happening. At the same time, nothing is destined. It is possible that our leaders, individually and collectively, will not fight but bring people together to do the hard and smart things necessary to deal well with these challenges and thus overcome them. Human nature being what it is, I’m not optimistic.
Since we all have to bet on the future in some way, I hope this macrocycle perspective is helpful to you as it has been to me.
The views expressed in Fortune opinion pieces are solely those of the author and do not necessarily reflect the views and beliefs of: wealth.
This story originally appeared on Fortune.com
