The Big Cycle of the United States and the Dollar
This article is a part of my Best Reads of the Month section on my website www.mikegorlon.com. Each month I pick one or two articles or blog posts that I find on the internet which I thought were really insightful, interesting or moving. Then I share them with you. You can view the previous month’s articles by going to: https://www.mikegorlon.com/best-reads-of-the-month
July 2020: The Big Cycle of the United States and the Dollar Part 1 and The Big Cycle of the United States and the Dollar Part 2
This month’s best read of the month is a history of the United States empire and how it started to slowly gain power starting in the late 1800’s to how it began to eventually become the dominant country in the world right after World War II.
It is written by Ray Dalio who I’ve written about before due to his vast knowledge and experience of markets and economic history.
Ray focuses on the short-term debt cycles that happened in the US starting from 1930 and leading up to today in part 2 and in part 1 he discuses the US dollar and the economic war from 1930–1939 which led to the shooting war from 1939–1945.
Here are some great quotes I’ve highlighted below from both parts:
“Deflationary depressions are debt crises caused by there not being enough money in the hands of debtors to service their debts. They inevitably lead to the printing of money, debt restructurings, and government spending programs that increase the supply of, and reduce the value of, money and credit. The only question is how long it takes for government officials to make this move.
In the case of the Great Depression, it took from the October 1929 peak to Roosevelt’s March 1933 action to make the move. From that point until the end of 1936 — the year the Federal Reserve tightened monetary policy and caused the recession of 1937–38 — the stock market returned over 200%, and the economy grew at an average real rate of about 9%!”
*****
“In China, Mao Zedong’s death in 1976 led Deng Xiaoping to come to power in 1978, which led to a shift in economic policies that included capitalist elements like private ownership of businesses, the development of debt and equities markets, entrepreneurial technological and commercial innovations, and even the flourishing of billionaire capitalists — all under the strict control of the Communist Party. This shift in Chinese leadership and approaches, while seemingly insignificant at the time, was going to germinate into the biggest single force to shape the 21st century.”
*****
“During this period [from 1990 to 2008] debt and non-debt liabilities like pension and healthcare liabilities grew a lot in the US and debts were used to finance speculations leading up to the dot-com bubble of 2000 and the mortgage bubble of the mid-2000s that led to busts that were stimulated out of by the creation of more money and debt. These debt cycles are both undesirable and understandable because there is a tendency to favor immediate gratification over long-term financial safety, particularly by politicians.
Most people pay attention to what they get and not where the money comes from to pay for it, so there are strong motivations for elected officials to spend a lot of borrowed money and make a lot of promises to give voters what they want and to take on debt and non-debt liabilities that cause problems down the road. That was certainly the case in the 1990–2008 period.”
Part 2: https://www.linkedin.com/pulse/big-cycle-united-states-dollar-part-2-ray-dalio
