This is really good content! Thanks for such helpful information. You explain these concepts in a way that is really easy for me to understand. Much appreciated!
Having recently read Michael Hudson book Super Imperialism it’s hard to be optimistic for USA. We are probably going to either have a civil war or Washington DC will be nuked. Government at all levels are 45 percent of USA economy now
My late father said “when I was a boy people were self reliant nowadays everyone has their hand in your pocket”. The culture of the country has changed. It’s become a rentier society dominated by FIRE sector which is great for Warren Buffet as is an insurance guy
Middle class is disappearing etc me have grifters in the corporate suites and in the government offices
Trillions are wasted every year by psychopaths in politics
Of course will keep importing people to extract from them for a generation or two.
Karl Polanyi the great socialist was correct the USA no longer has free land so those days are gone
It needs to invest in its citizens not just import people
Fully agree with all the points you brought up. If the current regime of policy disaster continues, then Dalio is correct, the US is indeed more than 75% done with the cycle, which to lead to more internal chaos/friction and broader geopolitical tensions.
To your point, now is the time more than for the government and the private sector to join forces to drive policy making, so we have better outcomes, when it comes to driving investment to re-shape education, infrastructure, work and entrepreneurship. The decoupling of innovation from government policy making over the last decades has only resulted in wider than normal wealth gaps, but I believe it can be reversed. But, whether it will be or not, depends mostly on insider motivation and interests.
They have every intention of importing a civil war... The situation in Haiti is totally manufactured by Clinton and DNC plans to rush the as Argentina clear their prisons to awaiting planes supplied by guess who?
Is it possible that the tens of trillions of dollars that have been extracted from the private sector and spent on vote buying policies like warfare, welfare, climate change and student debt have made us so poor a single income can no longer sustain a family?
Agreed, although the US prides itself as the center of capitalism, over the last couple of decades, policy making has increasingly shifted away from ensuring the fair allocation of resources under a capitalistic regime to supporting the wealthy. These are repeated patterns in history, when you look at past world powers, Great Britain, the Dutch, etc. Although I took a couple of excerpts from Dalio's book, I would recommend everyone to read The Principles of Dealing with the Changing world order to get a real good understanding of how economic cycles work in a cause-effect relationship.
Great read, Amrita! I can't wait for part 2! You've raised some excellent points about the challenges facing the US economy. Especially concerning are the unprecedented conditions of interest expense eclipsing all other costs for the US Government, as well as the rapidly declining birth rate that many speculate will lead to a decrease in world population soon (which could potentially shrink GDP as well as the market for our cutting edge innovations). It's difficult to predict exactly what a declining global population might do to the world's economies since our current models are all constructed under the assumption that populations will always be increasing. I'm sure I'm not alone in wondering how the USA will manage to continue paying this interest if GDP shrinks or global markets contract. It feels like a stable future hinges on US dominance with AI technology in the coming years.
Really looking forward to reading your vision for how this plays out, now that you've set the stage so well.
The declining/ageing population is definitely a growth dampener (when we don't take into account the productivity unlock from technology), but in all honesty, the ageing population in the US is actually not as bad as it is in Europe and Japan. In global economy and investing, it's all "relative" standing, and since the fundamentals of the US is not as bad as it is in Europe and Japan, we are still seeing the dominance of the US dollar, demand for UST's and the outperformance of the S&P 500.
As for interest expense, it sure changes the dynamics of a nation, where the government becomes bigger than the economy. However, remember, unlike you and I who may default on our debts if we run out of money, the US government can always continue to borrow/issue new debt. Now, down the line (who knows, how long?), it is very possible that the demand for US debt (UST's) will drop given the weakening fundamentals, in which case the Fed would have to monetize it (QE), which would lead to a devaluation of the dollar (which has happened multiple times in the past), but only to create an environment of low or negative growth, but extremely high inflation, a phenomenon that often plagues emerging economies.
I am though optimistic on AI, we are definitely at the cusp, and while there are lots of unknown unknowns pertaining to the risks of plagiarism, deepfakes, etc., as well as whether the future of AI is in the hand of the incumbents, I believe we will see an era where learning and work fundamentally changes. So, it is necessary now more than ever for the government and innovators to join forces tp drive effective policy making, and not something like what we saw this past decade, where a regulator asks 10 years later to Mark Zuckerberg, "how does facebook make money?"
I think China has some fundamental issues it needs to solve, before it can resume its journey upward.
Obviously, since Deng Xiaoing's time, when China opened its economic gates that ushered in the era of the globalization, China had been the growth story. However, I think, there are lots of macro forces at the moment with the ageing population, property deflation and a government that is centered around "common prosperity" that has scared away foreign investors at large. Not to mention, the lack of transparency as well as deteriorating relationships with the US, that can cause many more companies down the line to de-risk their supply chains and move elsewhere, India, Indonesia, for example. So, geopolitically, it's a mess.
Obviously, stocks are now super cheap, but I wouldn't bet on China (may have a small allocation) given current set of conditions, I am more optimistic on India and Indonesia, which are at the receiving end of the FDI's leaving China, as well as the greater harmony in values to the US. Does that answer your question?
The Bretton Woods Agreement put the dollar in the position of being the world’s leading reserve currency. At US insistence, in preference to the scheme advanced by JM Keynes. And when it went off the gold standard the US went on a spending spree.
Warren should have said something like 'Don't bet against the country that prints the money that is universally accepted', until it's not accepted.
Its nice to know that just two workers can add a million dollars to the product of S and P 500 companies. There are a few smart bankers in that league.
What does AI have to say about the way that million dollars and the ownership of assets get to be concentrated in ever fewer hands? What does it say about the future of consumption when half the population is saddled with debt and an unsustainable minimum wage.
What does AI have to say about the consequences of single purpose zoning as it affects the distances people have to travel and the consequent dependence on the automobile and cheap sources of fuel ? What does it have to say about their prospects of buying an electric car?
What does AI have to say about providing a house that within reach for the minimum wage earner. Will he also be able to own a car, to partner up and raise children?
What does AI have to say about why teachers can no longer manage children in schools? And the course of national productivity going forward?
What does AI have to say about how to manage people who conduct gain of function experiments and devise vaccines to counter the disease that results, then mandate the use of said vaccine even though it results in enhanced disease uptake and other diabolical negatives?
Whatever AI has to say about these problems, will it be able to convince people and the US as a nation, to share the proceeds of production more equitably?
There is one country that has a more generous attitude to others and a manifest determination to share and it is vilified by the US. Appears to me that ordinary intelligence can suffice when people have a determination to work for the common good.
You have to ask yourself what the US national interest actually is. Is it any more than making spectacularly destructive armaments and putting them in the hands of its frequently irresponsible, friends abroad? Can the leopard change his spots? Jeremiah 13:23 New International Version (NIV)
Can an Ethiopian change his skin or a leopard its spots? Neither can you do good who are accustomed to doing evil.
Great work as always. I'm leary to be that optimistic about a productivity boom though. They're pumping AI while getting ROI and into the black. Big time. With so many disenfranchised millenials and Gen Z and wages not really going up yet average household spends too much it's going to leave people hungry but they won't be able to really profit from these tools as much as initially thought. I hope you are correct and millenials can start buying houses soon. What I hope to see is a return to 580 scored mortgages. Sub prime looks different than it did before covid and I think if they are saddled with an ARM it may ease the burden a bit before commercial real estate takes a dive but if I owned commercial real estate I'd hold it as it's a wave that needs to be rode. I really do hope you're right. The small cap is troublesome. It could be little fires everywhere type of situation.
Great stuff Amrita …. the issues dragging the country down as expressed by David Lentz above and others need to be addressed and why will we not trust our people including those in the government and the future generations to do the right things going forward to keep America Great
Agree, the US government policy making has taken place in isolation over the last couple of decades, and this has exponentially worsened the wealth gaps in the country. And unless, we see proper coordination between the government and innovators, we may be in for some rough but typical "late stage" dynamics of increasing internal friction (populism) and greater threats from geopolitical pressures.
We need to clean out the current administration on all levels as they they have been actively hollowing out our country for the last 3+ years - we might recover (?)
Yes, I agree with you. We need a deep cleanse/detox, I believe that the administration has actually been driving policy, completely decoupled from general long-term public interest for decades now, and that's ironical, especially since US is the poster child for modern-day capitalism.
At this point, the only way to reverse it, will be if the government and the innovators actually join forces to truly understand how to leverage the technologies to drive policy to re-build education, work, housing/health, etc, of course the underlying motivation and short term interests of people with wealth and power may prove as painful obstacles.
Dalio's work sounds very interesting. I am struck by the gap between the US's current valuation in terms of innovation vs. education. Where is this innovation coming from if the education is so broken? Industry itself must act as its own sort of university system, so it seems. The escalation of disparities is a good place to conclude to launch us into the next edition.
I think the biggest explanation for the disparities between the decline in education vs. a rise in innovation (quite unnatural indeed), can be perhaps explained by skilled immigration. Another evidence is also found in the growing divergence between the haves and the have nots. The ones who were exceptional are building million/billion dollar businesses, while the others are getting left behind, with widening inequality.
We should probably should factor in all the money laundering in Ukraine…..draining the US. The corruption is rampant. This needs to be factored in to any scenario.
Great article Amrita. Dalio's book is an excellent study of the cycle of boom and bust for reserve currencies and world powers. A great read.
Another brilliant book is The end of the world is just beginning: Mapping the collapse of globalization. I just loved this book, don't know if it was my bias or what.
Thanks Stone, Part 2 coming up in less than 2 weeks. I better get a head start on it, rather than leaving it for the weekend, given my world-famous procratining self. Friday5 will be coming up tomorrow though (hopefully), stay tuned.
This is really good content! Thanks for such helpful information. You explain these concepts in a way that is really easy for me to understand. Much appreciated!
Thanks Simon, I am glad you found it useful. Thanks for your kind words.
Having recently read Michael Hudson book Super Imperialism it’s hard to be optimistic for USA. We are probably going to either have a civil war or Washington DC will be nuked. Government at all levels are 45 percent of USA economy now
My late father said “when I was a boy people were self reliant nowadays everyone has their hand in your pocket”. The culture of the country has changed. It’s become a rentier society dominated by FIRE sector which is great for Warren Buffet as is an insurance guy
Middle class is disappearing etc me have grifters in the corporate suites and in the government offices
Trillions are wasted every year by psychopaths in politics
Of course will keep importing people to extract from them for a generation or two.
Karl Polanyi the great socialist was correct the USA no longer has free land so those days are gone
It needs to invest in its citizens not just import people
That means universal healthcare and education
All USA will have is universal homelessness
lol
Fully agree with all the points you brought up. If the current regime of policy disaster continues, then Dalio is correct, the US is indeed more than 75% done with the cycle, which to lead to more internal chaos/friction and broader geopolitical tensions.
To your point, now is the time more than for the government and the private sector to join forces to drive policy making, so we have better outcomes, when it comes to driving investment to re-shape education, infrastructure, work and entrepreneurship. The decoupling of innovation from government policy making over the last decades has only resulted in wider than normal wealth gaps, but I believe it can be reversed. But, whether it will be or not, depends mostly on insider motivation and interests.
They have every intention of importing a civil war... The situation in Haiti is totally manufactured by Clinton and DNC plans to rush the as Argentina clear their prisons to awaiting planes supplied by guess who?
Is it possible that the tens of trillions of dollars that have been extracted from the private sector and spent on vote buying policies like warfare, welfare, climate change and student debt have made us so poor a single income can no longer sustain a family?
Agreed, although the US prides itself as the center of capitalism, over the last couple of decades, policy making has increasingly shifted away from ensuring the fair allocation of resources under a capitalistic regime to supporting the wealthy. These are repeated patterns in history, when you look at past world powers, Great Britain, the Dutch, etc. Although I took a couple of excerpts from Dalio's book, I would recommend everyone to read The Principles of Dealing with the Changing world order to get a real good understanding of how economic cycles work in a cause-effect relationship.
Great read, Amrita! I can't wait for part 2! You've raised some excellent points about the challenges facing the US economy. Especially concerning are the unprecedented conditions of interest expense eclipsing all other costs for the US Government, as well as the rapidly declining birth rate that many speculate will lead to a decrease in world population soon (which could potentially shrink GDP as well as the market for our cutting edge innovations). It's difficult to predict exactly what a declining global population might do to the world's economies since our current models are all constructed under the assumption that populations will always be increasing. I'm sure I'm not alone in wondering how the USA will manage to continue paying this interest if GDP shrinks or global markets contract. It feels like a stable future hinges on US dominance with AI technology in the coming years.
Really looking forward to reading your vision for how this plays out, now that you've set the stage so well.
Thanks Dan.
The declining/ageing population is definitely a growth dampener (when we don't take into account the productivity unlock from technology), but in all honesty, the ageing population in the US is actually not as bad as it is in Europe and Japan. In global economy and investing, it's all "relative" standing, and since the fundamentals of the US is not as bad as it is in Europe and Japan, we are still seeing the dominance of the US dollar, demand for UST's and the outperformance of the S&P 500.
As for interest expense, it sure changes the dynamics of a nation, where the government becomes bigger than the economy. However, remember, unlike you and I who may default on our debts if we run out of money, the US government can always continue to borrow/issue new debt. Now, down the line (who knows, how long?), it is very possible that the demand for US debt (UST's) will drop given the weakening fundamentals, in which case the Fed would have to monetize it (QE), which would lead to a devaluation of the dollar (which has happened multiple times in the past), but only to create an environment of low or negative growth, but extremely high inflation, a phenomenon that often plagues emerging economies.
I am though optimistic on AI, we are definitely at the cusp, and while there are lots of unknown unknowns pertaining to the risks of plagiarism, deepfakes, etc., as well as whether the future of AI is in the hand of the incumbents, I believe we will see an era where learning and work fundamentally changes. So, it is necessary now more than ever for the government and innovators to join forces tp drive effective policy making, and not something like what we saw this past decade, where a regulator asks 10 years later to Mark Zuckerberg, "how does facebook make money?"
“Ads, Senator… we run ads on the site which advertisers pay us for” with a strange robotic grin 🤣
Lolll....that was hilarious and unfortunately very sad at the same time.
...ah, but ...we r a pro-
natalist👶
culture... not 2d to roe🛑
...necessarily
....eg: 🤦♀️ > " do you have
c h i l d r e n ? "
☺️ " no, i don't "
" oh...
i'm so
... s o r r y "
but then
if we continue to let
Russia
wipe out the bread basket of
africa / europe = famine
& ... all eyes are on
...israel
& putin aims to go
...out with a 💥
👋 altruism ... I read in these pages this week
Masterfully done. 'Nuff said.
Thanks Greg for your kind words, much appreciated.
What a great read, and a great cliffhanger for Part 2.
Thanks Patrick for your kind words. Glad you enjoyed the post.
Great job! I gotta take my time to dig into it.
Anyway, I have another question.
Would you bet on China instead?
https://substack.com/profile/85764394-gianni-berardi/note/c-51418325
Thanks Gianni.
I think China has some fundamental issues it needs to solve, before it can resume its journey upward.
Obviously, since Deng Xiaoing's time, when China opened its economic gates that ushered in the era of the globalization, China had been the growth story. However, I think, there are lots of macro forces at the moment with the ageing population, property deflation and a government that is centered around "common prosperity" that has scared away foreign investors at large. Not to mention, the lack of transparency as well as deteriorating relationships with the US, that can cause many more companies down the line to de-risk their supply chains and move elsewhere, India, Indonesia, for example. So, geopolitically, it's a mess.
Obviously, stocks are now super cheap, but I wouldn't bet on China (may have a small allocation) given current set of conditions, I am more optimistic on India and Indonesia, which are at the receiving end of the FDI's leaving China, as well as the greater harmony in values to the US. Does that answer your question?
Sure!
A fine exposition. A tour de force. And timely.
The Bretton Woods Agreement put the dollar in the position of being the world’s leading reserve currency. At US insistence, in preference to the scheme advanced by JM Keynes. And when it went off the gold standard the US went on a spending spree.
Warren should have said something like 'Don't bet against the country that prints the money that is universally accepted', until it's not accepted.
Its nice to know that just two workers can add a million dollars to the product of S and P 500 companies. There are a few smart bankers in that league.
What does AI have to say about the way that million dollars and the ownership of assets get to be concentrated in ever fewer hands? What does it say about the future of consumption when half the population is saddled with debt and an unsustainable minimum wage.
What does AI have to say about the consequences of single purpose zoning as it affects the distances people have to travel and the consequent dependence on the automobile and cheap sources of fuel ? What does it have to say about their prospects of buying an electric car?
What does AI have to say about providing a house that within reach for the minimum wage earner. Will he also be able to own a car, to partner up and raise children?
What does AI have to say about why teachers can no longer manage children in schools? And the course of national productivity going forward?
What does AI have to say about how to manage people who conduct gain of function experiments and devise vaccines to counter the disease that results, then mandate the use of said vaccine even though it results in enhanced disease uptake and other diabolical negatives?
Whatever AI has to say about these problems, will it be able to convince people and the US as a nation, to share the proceeds of production more equitably?
There is one country that has a more generous attitude to others and a manifest determination to share and it is vilified by the US. Appears to me that ordinary intelligence can suffice when people have a determination to work for the common good.
You have to ask yourself what the US national interest actually is. Is it any more than making spectacularly destructive armaments and putting them in the hands of its frequently irresponsible, friends abroad? Can the leopard change his spots? Jeremiah 13:23 New International Version (NIV)
Can an Ethiopian change his skin or a leopard its spots? Neither can you do good who are accustomed to doing evil.
I'm looking forward to part 2.
Thank you Erl.
Great work as always. I'm leary to be that optimistic about a productivity boom though. They're pumping AI while getting ROI and into the black. Big time. With so many disenfranchised millenials and Gen Z and wages not really going up yet average household spends too much it's going to leave people hungry but they won't be able to really profit from these tools as much as initially thought. I hope you are correct and millenials can start buying houses soon. What I hope to see is a return to 580 scored mortgages. Sub prime looks different than it did before covid and I think if they are saddled with an ARM it may ease the burden a bit before commercial real estate takes a dive but if I owned commercial real estate I'd hold it as it's a wave that needs to be rode. I really do hope you're right. The small cap is troublesome. It could be little fires everywhere type of situation.
Great stuff Amrita …. the issues dragging the country down as expressed by David Lentz above and others need to be addressed and why will we not trust our people including those in the government and the future generations to do the right things going forward to keep America Great
Agree, the US government policy making has taken place in isolation over the last couple of decades, and this has exponentially worsened the wealth gaps in the country. And unless, we see proper coordination between the government and innovators, we may be in for some rough but typical "late stage" dynamics of increasing internal friction (populism) and greater threats from geopolitical pressures.
Great article Amrita.
We need to clean out the current administration on all levels as they they have been actively hollowing out our country for the last 3+ years - we might recover (?)
Thanks Tuco.
Yes, I agree with you. We need a deep cleanse/detox, I believe that the administration has actually been driving policy, completely decoupled from general long-term public interest for decades now, and that's ironical, especially since US is the poster child for modern-day capitalism.
At this point, the only way to reverse it, will be if the government and the innovators actually join forces to truly understand how to leverage the technologies to drive policy to re-build education, work, housing/health, etc, of course the underlying motivation and short term interests of people with wealth and power may prove as painful obstacles.
Dalio's work sounds very interesting. I am struck by the gap between the US's current valuation in terms of innovation vs. education. Where is this innovation coming from if the education is so broken? Industry itself must act as its own sort of university system, so it seems. The escalation of disparities is a good place to conclude to launch us into the next edition.
I think the biggest explanation for the disparities between the decline in education vs. a rise in innovation (quite unnatural indeed), can be perhaps explained by skilled immigration. Another evidence is also found in the growing divergence between the haves and the have nots. The ones who were exceptional are building million/billion dollar businesses, while the others are getting left behind, with widening inequality.
We should probably should factor in all the money laundering in Ukraine…..draining the US. The corruption is rampant. This needs to be factored in to any scenario.
Absolutely.
Great article Amrita. Dalio's book is an excellent study of the cycle of boom and bust for reserve currencies and world powers. A great read.
Another brilliant book is The end of the world is just beginning: Mapping the collapse of globalization. I just loved this book, don't know if it was my bias or what.
Thanks for the recommendation. I will definitely check it out and read.
It's a fascinating time we live in, with so many forces at play.
Incredible post Amrita, particularly love all the use of graphics. Makes it such a nice read.
I agree with pretty much everything you say here. It's becoming a very concentrated market which is never entirely healthy.
Thanks Oliver. I do enjoy storytelling with graphics, though it is a pain to build them on your own or source them, but I gues...worth the effort.
As for the breadth of the market, the underperformance of the small caps is probably one of the best example of the great divide in the US.
Sheer, undiluted brilliance. A must read for anyone wanting to understand the 'whys' AND the 'hows.'
Looking forward to Part the Second..
Thanks Stone, Part 2 coming up in less than 2 weeks. I better get a head start on it, rather than leaving it for the weekend, given my world-famous procratining self. Friday5 will be coming up tomorrow though (hopefully), stay tuned.
You KNOW how I feel about the Friday5 😉 Looking forward to it, AND Part 2 of your previous article 🫡