More than any single time since World War II, financial experts in the West are openly questioning the current US dollar-led monetary order.
A number of fundamental questions continue to hound the US going forward in what many believe is an increasingly decentralized, volatile global financial playing field.
How long can the US continue to rack-up trillion dollar deficits? If the US dollar does lose its its world reserve currency status, what will the new monetary order look like?
Already, countries like China and Russia are taking active steps to phase out the US dollar transactions in major commodity trades like oil and gas.
Undoubtedly, China is entering a new ascendant phase in terms of projecting global power and influence. One of the main drivers of this transition is not only the Chinese economy – but its culture too.
While many in US still in denial that rest of world is moving beyond the post-WWII global order, China has already proven it can carry and sustain the mantle of a state-led, powerhouse economy. Going forward, can the American culture of individualism compete economically with the Chinese state’s collectivist system going forward?
Zero Hedge reports…
With the end of 2018 marking the 40th anniversary of China opening up & reforming (and with an increasingly loud group of market participants questioning the foundations of China’s economic miracle – and more importantly, it’s future), Bridgewater founder, Ray Dalio [pictured above], believes now is a good time to reflect on China’s last 40 years.
“Since I have been fortunate to have experienced 34 years of this 40 years in an up close and intimate way, and since I study what makes countries succeed and fail, I have some experiences and thoughts to share…”
The table below shows just a few representative statistics:
These results speak for themselves, but Dalio adds:
“To have such rates of improvements in so many areas and for so many people has made it the greatest economic miracle ever.”
And from what Dalio has seen, he believes that the very impressive results that the Chinese leadership and the Chinese people produced came about primarily because of the powerful combination of:
A) China’s opening up and reforming following an extended period of isolation that led to a fast catching up (especially in the coastal regions of China) with the advanced developed world, and
B) the power of the Chinese culture and it’ related ways of operating.
Crucially, the billionaire hedge fund manager points out that, if you haven’t spent time in China, you need to get any stereotypes you might have out of your mind because it’s not how it was. This is not your father’s communism. It is “socialism with Chinese characteristics” that has been significantly and very effectively reformed, which has made it much more vital, creative, and economically free.
(…) But, as the fund manager notes, while Chinese culture has been evolving, it has at its most fundamental level been operating in similar ways for many hundreds or even thousands of years and the results of operating that way are knowable in an approximate way.
“I have recently been researching the rise and fall of reserve currencies, which led me to study the rises and declines of the world’s most powerful countries. That led my research team and me to put together the following indices of the relative powers of leading countries since 1500. These indices are a combination of six sub-indices that measure six different types of power:
1) innovation & competitiveness,
2) domestic output,
3) share of world trade,
4) financial-center size and power,
5) military strength, and
6) reserve-currency status.
…and they show when different countries reached their peaks relative to the rest of the world.”
As shown in the chart below, China was either the number one or number two most powerful country from 1500 to around 1800 when it went into relative decline…
That decline continued until around 40 years ago, when, as Dalio explains rather ominously for the American hegemon:
“…the opening up and reforming led to the previously described strong ascent to being the second-most powerful country in the world and on the path to being the most powerful one. I believe that excellent performance was largely the result of China’s powerful culture and its reforms.”
Given that impressive track record and how deeply imbued the culture behind it is, we shouldn’t expect China’s most fundamental ways of operating to change much. As a result, Dalio warns:
“while trade deals can be made, attempts to change “Chinese characteristics”, – most importantly to change the top-down government management of most/all aspects of the system pursuit of making China as great as it can be – won’t work.“
So, in summary, “it’s not the economy, it’s the culture stupid!”
And judging by Dalio’s take on American culture, it is clear where he thinks this is going…
“Most fundamentally, the US is a country in which individuals, individualism, and individual property rights are perceived to be of paramount importance it is directed from the bottom up (e.g., through “one man, one vote” democracies that empower people to choose their leaders), being revolutionary is considered a good thing, and conflict is valued more than harmony.
Rather than respecting top down control most American have a strong preference to keep government from interfering with their most individual choices. Character development is a personal or family issue, not a government issue (which leaves it largely neglected in areas with broken families, especially if they’re poor).
Rather than there being a long-term top down vision for the country and a plan to achieve that vision, in the capitalist and democratic system such directions are more bottom up determined based on commercial and popularity considerations.“
Of course, the world’s largest hedge fund manager avoids directly slamming America’s ‘dream’ or supporting China’s central planners:
“I’m not saying which system is better. Each culture/system has its pros and cons that I’m not going to get into now.
I believe that the important thing to know are that while there will be trade wars and trade truces they aren’t the most important things. “
However, Dalio signals the following seven things as the most important to follow:
1) China has a culture and system that has worked well for it for a long time so it shouldn’t be expected to change much,
2) the U.S. has the same,
3) these systems (and those of other countries) will be both competing and cooperating, and how well they do that will be an important influence on global conditions,
4) how well each system works in practice will have a far greater influence on where each country stands in the future than the terms of the deals that they strike with each other, so each would do well to examine its own weaknesses and come up with reforms to rectify them, and
5) there is a lot to respect about the Chinese culture and approach that led to its remarkable accomplishments,
6) we would do well to learn from each other, cooperate and compete to bring each other up rather than to tear each other down, and
7) China is a place we need to continue to evolve with and invest in.
And while Dalio took 2,500 words to summarize why America’s ‘end of empire’ is looming, we managed it in just three words in 2014:
“Nothing lasts forever!”
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