Ray Dalio who founded the world’s largest hedge fund – Bridgewater – has published a trenchant analysis going back several hundred years of the world’s long term debt cycles.
He found the cycles rhyme and average out to 75 years. He discusses in detail the steps involved from cradle to grave of each cycle. War tends to be the end point with the victor tending to be a new regime whose fiat then takes the place of the fallen regime’s fiat as the world’s reserve currency.
Such status confers great power on the respective currency in having the leverage thus upper hand in trade and monetary policy. Indeed, when the US sneezes, the rest of the world catches a cold. US petrodollars have also set the clear trade advantage for the US given the way the US wields them.
Past title holders
But in times past, it was reserve currencies such as the Dutch gilder or British pound that set the tone for the rest of the world. Each time, the saying “from shirtsleeves to shirtsleeves in three generations” held some truth.
Initial focus, discipline, and hard work yielded strong results. But wealth, prosperity, and abundance eventually led the leading nation in question down a slippery slope. Eventually, “leftist” policies which focused on soaking rich individuals and successful companies with taxes along with bloated government spending on ill-defined “pork belly” projects hampered economic growth.
Eventually, the weight of the government became too much to bear as their debts sped past their profits, forcing them to turn to their central bank for hand outs. The central bank then launched its various forms of quantitative easing to ease their debt burden, but the more they printed, the more indebt they became, so instead of growing their way out of their debt, they got buried by it, until their fiat currency started to plummet due to overprinting.
This often had a hyperinflationary effect which ended up destroying their currency.
US dollar wins post WWII
The most recent changing of the guard came at the end of World War II with the US dollar as the new sovereign currency. This was 76 years ago, underscoring Dalio’s point that we are in the final stages of this long term debt cycle.
He has recently pondered publicly as to what, if anything, could create an endpoint to this cycle that is not ravaged by a global economic wrecking ball or culminate in World War III.
The answer to Dalio’s query
I have answered Dalio’s question on record. “ExpoTech”, or technologies that grow at an exponential rate, tend to get underestimated as the wealth created over time becomes exponential.
Singularly, the doubling effect results in geometric growth, thus what starts out as a grain of sand soon becomes an entire beach. Thus the historically record levels of debt in which the world finds itself does not have to have a crash landing because such ExpoTech such as blockchain, AI, and VR did not exist in past cycles.
ExpoTech vs Govopoly
But the planet is wielding the sharpest double-edged sword. Countering all the glories of ExpoTech is the rise of authoritarian government policy. It is just a matter of degree.
Legendary futures trader and friend Ed Seykota published a book several years ago called “Govopoly in the 39th Day”.
He said that once the cost in time and money spent dealing with regulatory bureaucracy outweighs productivity, it is the beginning of the end by the 39th day because in pond ecosystems, duckweed doubles each day. Over the first 25 days or so, it goes relatively unnoticed but by day 30, it starts to affect pond life, and by day 40, it doubles once more only to suffocate all life in the pond. He says we are at day 39.
Duckweed of course is the analogy to government bureaucracy, over-regulation, and authoritarian law.
Seykota writes that this is the natural order of things. If you compound a penny at the time Christ was born at a nominal 2% APR, the amount of money would be over 1.5 x 10^17, or 150,000 quadrillion (1 quad = 1000 tril), well beyond anything in the world today. Thus hyperinflation which sometimes comes at the end of a debt cycle, has a way of sweeping away the old order, and is why no sovereign currency keeps its title indefinitely.
Bitcoin creates separation of money and state
Ultimately, the largest catalyst that creates the non-crash landing and relatively peaceful ending is Bitcoin which is the world’s first secure, un-censorable, limitless, borderless transfer of value.
Its usage doubles every year so currently stands at around 2%. It won’t be long before a sizeable portion of the planet is using, transacting, or holding Bitcoin to guard against falling fiat. Already, HNWIs and major corporations are lining up to initiate or increase their holdings. When you combine that with the supply crisis due to major institutions buying up Bitcoin such as PayPal, Square, and Grayscale, you have an explosive combination where demand well exceeds supply.
Thus the current bull market may not even be half way complete. My keynote speech at the Geneva WealthTech event in 2017 contained a slide where I predict $1,000,000 a Bitcoin by the end of 2023. My prediction still stands based on S2F metrics among others.
I believe we will get to at least $500,000 in this current bull cycle which may end in late 2021/early 2022. The question will be whether Bitcoin has to go through its typical 84% or greater peak-to-trough correction before a new bull can begin, given the number of major tipping points in which the global economy finds itself. If not, the bear could be less punishing than prior bears.
Regardless, my metrics have called every major top and bottom in Bitcoin since 2011 to within weeks, so trying to predict the depth of a bear market is futile. Just keep close focus on the price/volume action of your positions to tell you when to entry, add, or exit.
When done with the skilled eye of a watchmaker, the hands of a surgeon, and the gut and heart of Muhammad Ali, you may stand a chance at life changing wealth that can then, in turn, be used for improving many lives.
Dr Chris Kacher, nuclear physicist PhD turned stock+crypto trading wizard / bestselling author / blockchain fintech specialist / top 40 charted musician. Co-founder of Virtue of Selfish Investing and Hanse Digital Access.
Dr Kacher bought his first Bitcoin for just over $10 in January 2013. His metrics have called every major top and bottom in Bitcoin since 2011. He was up in 2018 vs the median performing crypto hedge fund at -46% (PwC) and is up quadruple digit percentages since 2019 as capital is force fed into the top performing alt coins while weaker ones are sold.