markets in bonds in the 1970s, b) the 1979-81 bone-crushing monetary tightening that made cash the best
investment and led to a lot of deflationary debt restructuring by non-American debtors, and then c) falling
inflation rates and the 1980s’ excellent performance of bonds, stocks, and other deflationary assets. The
charts below convey it very well, as they show the swings up and down in dollar-denominated inflation rates and
interest rates from 1945 to the present. One needs to keep these moves and the mechanics behind them in mind in
thinking about the future.
Through it all the dollar remained the world’s leading reserve currency. The entire period was a forceful
demonstration of the benefits to the US of having the world’s reserve currency that most of the world’s debts and
money are denominated in.
1990-2008: Globalizing, Digitalizing, and Booming Financed by Debt
Geopolitically, because of its economic failures, the Soviet Union could not afford to support a) its empire, b) its
economy, and c) its military at the same time in the face of US President Ronald Reagan’s arms race spending. As
a result the Soviet Union broke down in 1991 and abandoned communism.
It was apparent that communism failed or was failing everywhere, so many countries moved away from it. The
breakdown of the Soviet Union’s money/credit/economic system and its large foreign debts were disastrous for the
Soviet Union economically and geopolitically through most of the 1990s. That is a whole other interesting story
that we won’t get into now. In any case, it is notable that in the 1980-95 period most communist countries
abandoned classic communism, and the world entered a very prosperous period of globalization and free-market
capitalism.
Since the early 1990s there have been three economic cycles that brought us to where we now are—one that
peaked in the 2000 dot-com bubble that led to the recession that followed, one that peaked in the 2007 bubble that
led to the 2008 global financial crisis, and one that peaked in 2019 just before the 2020 coronavirus-triggered
downturn. During this 1990-2000 period we also saw the decline of the Soviet Union, the rise of China,
globalization, and advances in technologies that replaced people, which was good for corporate profits and
widened the wealth and opportunity gaps.
Notable markers that reflected these developments were making the internet (i.e., the World Wide Web) available
to the public on August 6, 1991, which kicked off the dot-com/tech boom, and the creation of the World Trade
Organization on January 1, 1995, to facilitate globalization. “Technology development” and globalization that
replaced American workers’ jobs, especially those in the manufacturing sector, flourished from the 1990s until
around Donald Trump’s election in 2016. In that roughly 30-year period countries and country borders faded in
importance, and items and the incomes they produced were generally made wherever they could be most cost-
effectively produced, which led to production and development in emerging countries, accelerating mobility of
people between countries, narrowing wealth gaps between countries, and ballooning wealth gaps within them.
Lower-income workers in developed countries suffered, while higher-income workers in productive emerging
countries made fortunes. Though a bit of an oversimplification, it’s accurate to say that this was a period in which
workers in other countries (especially those in China) and machines replaced middle-class workers in the
United States.