When I started writing Superbubble, the core ideas were far outside the mainstream. Namely:
The US Dollar is moving towards its demise as the world’s reserve currency
US Treasury paper will be replaced by something else as a global reserve asset.
Now that these ideas are widely accepted, the debate has shifted from “if” to “when” change will happen.
But this is not a victory lap.
I was far too optimistic — expecting that the Eurozone would lead a peaceful transition away from the debt-based global system.
That's not what is happening.
Instead, European elites have been persuaded to throw a continent’s economy into the black hole of US deficits.
Rise and Fall
History goes through cycles. Bubbles burst. Civilizations decline. There are many theories to explain how empires come and go:
Sir John Bagot Glubb studied 4,000 years of history in Fate of Empires. He found that empires follow similar patterns: expansion, then development, then decline, then stagnation, then collapse.
Billionaire investor Ray Dalio extended Glubb’s work, with a focus on financial cycles. He defined the 10 most powerful empires over the last 500 years and found six main steps:
New World Order
A new cycle begins after a major war. The victors have won the right to create the new order, and they impose their rules and values on the conquered.Peace and Prosperity
The victors also have the power to quell rival nations and domestic factions. With dominance established, an era of stability and rising wealth begins.Debt Bubble
Peace and stability fuel an economic boom. People borrow money to place ever bigger bets on continued growth. This leads to financial bubbles.Wealth Gaps
With a large % of transactions being conducted in its currency, the empire's share of trade grew. Imperial money becomes a reserve currency, sucking in wealth from its vassals … And widening gaps between rich and poor.Debt Bust
This also leads to even more borrowing. Eventually, the financial bubble bursts, which fuels new conflict within the society. That forces governments into ever more extreme money printing.War and Revolution
Bursting bubbles create revolutionary pressure. These can play out peacefully or erupt into civil war. As the empire tackles conflict within, external rivals see chances to challenge a fading power. And this brings a major war …
In the aftermath, the new victors get to impose their order. And a new cycle begins …
In this view, the Ukraine war pushed the US-dominated cycle from step five (Debt Bust) to step six (War and Revolution).
And it looks like there could be a lot more war to come … With pressure rising in Taiwan, West Africa, Syria, Armenia, and Kosovo to name a few.
Hunt Witches
Ernest Hemingway described how financial crises and war tend to go together:
The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.
But a focus on the financial history doesn't get to why the bursting of financial bubbles so often leads to spiralling violence.
So we have to look outside of economics.
Rene Girard’s Violence and the Sacred is a study of human brutality through history, religion, and myth.
The core argument is that when human communities face problems, they look for victims to blame and punish.
The victims can be internal or external — and it doesn’t much matter how guilty they are.
Example:
Witch trials peaked between 1560 and 1630, with around 50,000 executed across Europe and the American colonies.
Nowadays, anyone attempting to punish witches would face time in a mental institution or prison.
Is that because Witch Trials solved the witch problem once and for all?
A better explanation is that:
The witch threat was overblown, and
The victims were chosen because they were weak.
75–85% of the accused were women, and mobs tend to choose victims who won’t fight back.
Point Fingers
Now, the word ‘scapegoat’ is used for all kinds of blaming activity, but its origins go back to Biblical times.
Leviticus describes the ritual slaughter of a goat as part of the ancient Yom Kippur (Day of Atonement) rituals.
There were many methods — a goat might be taken to a cliff and thrown off. Or have red ribbons tied to its horns and sent into the desert to die.
The ribbons represented the sins of the community. The death of the goat was meant to appease the demon Azazel.
And we are not different from the people who hunted witches and threw goats off cliffs.
Lynchings … Stonings … Inquisitions … Pogroms … Ethnic cleansing … Genocide. These are just a few of the terms for mob violence against weaker individuals and groups.
There are so many terms because this is part of human nature. Something we are driven to do because it is socially useful.
Girard claims that all-against-one violence prevents communities from spiralling into the chaos of all-against-all. That makes ritual violence a way to maintain peace and good relations within groups.
Always Escalate
Up to 85 million people were killed in World War 2 — about 3% of the world's population at the time.
After that, we had a lifetime of relative peace and good relations across the planet. Many thought that this was permanent and that humanity had evolved past the desire for human sacrifice.
The evidence from Afghanistan, Iraq, Libya, Serbia, and Syria was easy to ignore.
Of course, it was: we were still in the credit expansion phase of the cycle described by Dalio. And increasing economic growth smooths over many ills.
But the War in Ukraine shattered that illusion — and is a sign we are on the downslope of the cycle.
Putin’s invasion of Ukraine can also be seen as another step in a very long cycle of mimetic, tit-for-tat violence.
That does not fit the good (us) versus evil (them) narratives that both sides tell, but the Russia/Ukraine conflict goes back thousands of years.
Back to when Kyiv was the centre of the first Slavic state, and the birthplace of both nations.
Living together inside the Soviet Union, and then WW2, created new reasons for Ukraine and Russia to fear and dislike each other.
More recently:
In 2014 Ukrainians began scapegoating ethnic Russians — killing around 15,000 civilians.
In 2022 Russia escalated. Their invasion has reportedly killed 450,000 Ukrainians — at a ratio of 8:1.
The Western bloc responded weakly, by providing inadequate military support, and 11 packages of EU sanctions.
The sanctions were designed to weaken Russia’s economy but failed — doing more damage to Europe than the intended target.
So far, the Western collective has been careful to ensure that the war stays mostly on Ukrainian territory.
But pressure is mounting. As Ukraine loses — slowly — powerful lobbies want to confront Russia more directly.
The problem with cycles of mimetic violence is that once started, they very easily spiral out of control.
And now we have tech to annihilate most humans in a few fiery hours.
There are still around 12,500 nuclear warheads worldwide. And the key powers fighting over Ukraine, the United States and Russia, own 90 per cent of all the nukes.
Nuclear weapons are controlled by nations. Nation-states are led by politicians who occasionally stoke the citizens’ desire for war, gore, death, and blood.
That’s a situation humanity might not survive. Especially as the Western economic system deteriorates …
Hang Together
Empires rarely give up without a fight. The West is shrinking and losing its ability to impose rules on the rest of the world.
In response, the world’s autocrats have elected to hang together, to avoid hanging separately.
The BRICS+ control the majority of the world’s energy, land, and people.
And the technology gap is no longer as big as it was. War geeks argue whether their WarTech is better than ours, but they certainly have a lot more of it.
Western logistics are in no way ready for the wars being planned.
The decline of Western industry means we are many years away from being able to produce the weaponry needed to take on geopolitical rivals.
So we're gonna have to postpone the wars, fight and lose, or find some other way to release the scapegoating energy.
That release would likely be internal.
Dictate Reality
The easiest way for incompetent leaders to appear competent is through war abroad, and repression at home.
Western democracies are attempting to follow the “failing dictator” playbook as described by Guriev & Treisman in New Authoritarianism. Short version:
as regimes fail economically, they divert more and more resources into repression and information control.
This means the easiest path for weak leaders is to target domestic enemies.
Could that include you?
A few years ago that would have seemed wild and conspiratorial, but economics dictate that things must get a lot more nuts in the West.
It's clear that the world economy is at an inflection point. We may even be at the end of 500 years of Western dominance.
Sir Glubb and Dalio describe how empires come and go, as bubbles burst.
Rene Girard shows why we should expect bloodlust as primate communities feel the pressure.
This gives us reasons to be very pessimistic for the short term.
Debt collapses happen about once in every human lifetime. But if we get through this without nuking ourselves, there are also reasons to be cheerful.
If all goes well, a new cycle can begin, and future generations will live to blow financial hyperbubbles and gigabubbles far into the future.
Fingers crossed.
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