should be free flows of talented people without prejudices to their nationalities, nationalism is bad, and
global equal opportunity and profit-seeking capitalism are good—were the widely accepted paths to a better
world at the same time that 2) in China in 1978 Deng Xiaoping swung the pendulum from communist and
isolationist policies that worked terribly to “market”/“state-capitalist” and open-door policies that worked
terrifically. That led China to learn a lot, attract a lot of foreign capital, and become a giant exporter and
big saver.
As the Chinese learned and became more capable of producing goods cost-effectively, they provided the world
with inexpensive goods at first and more advanced goods later, and in the process became much richer. Other
emerging countries did so as well, the world expanded, and the wealth gaps between the richest countries and the
poorest countries narrowed as the poorest countries rose the most while the richest countries grew at slower rates.
Through this period the system raised almost all boats, especially the boats of the globalist elites, and the threats on
the horizon weren’t apparent. During this period China rose to be a nearly comparable power to the United States
and together they created most of the new wealth and new technologies while the rest of the world fell back
relative to the leaders. Europe, which was the source of the greatest global powers from the 15th century until the
20th century, became relatively weak, and Japan and Russia became secondary powers. All other countries were
peripheral; countries like India and a few emerging countries improved their conditions, though none of them
achieved world power status.
Since 2008: The Emergence of US-China Conflicts and the End of
Globalization
As is classic, periods of prosperity financed by debt growth lead to a debt bubble and a large wealth gap.
The bubble burst in 2008 (like in 1929), so the world economy contracted and middle-class Americans and
others in other countries were hurt (like in 1929-32), interest rates were pushed down to 0% (like in 1931),
which wasn’t enough easing so central banks printed a lot of money and bought a lot of financial assets in
2008 (like in 1934), which drove financial asset prices in most countries up starting in 2009 (like in 1933-36),
which benefited those people who had financial assets (the “haves”) more than the “have nots” so the wealth
gaps grew (like in 1933-38). That is when the “have nots” who were losing to globalization, especially those
who were seeing their jobs being taken by the Chinese and by immigrants, started to rise up against the
elites who were benefiting from globalization. As is typically the case, with economic bad times coinciding
with large wealth gaps, populism and nationalism grew around the world, like in the 1930s. That is when the
threats of the rising powers challenging the leading world powers started to become more apparent and the
era of peace, prosperity, and globalization started to wane and the era of conflicts between the rich and the
poor within countries and between the rising country (China) and the dominant world power (the US)
began.
During this period the Chinese held a lot of US-dollar-denominated debt—especially of US government agency
lenders Fannie May and Freddie Mac. For quite a while the US government didn’t let the Chinese holders of this
debt know if the US government would stand behind this debt. I had conversations with the top Chinese holders of
this debt as did David McCormick (who is now CEO of Bridgewater and was then the US Treasury Undersecretary
for International Affairs) and Hank Paulson (who was then US Treasury Secretary). We all were impressed with
their consideration and cooperation as they approached the dilemma that the US caused.
In November 2008 in the midst of the global financial crisis, leaders of the G20 countries gathered in Washington,
DC, and agreed to jointly stimulate their economies through aggressively stimulative fiscal and monetary policies
that required substantially increasing government debt and having central banks create money and credit to finance
it. During the 2009-12 period, debt growth in China was significantly faster than economic growth as a
result of large fiscal and monetary policy stimulations that were deployed to help pull the Chinese and the
world economies out of their weakness.
Phase 3, 2012 until Now: The Xi Phase of Becoming a World Power
In 2012 Xi Jinping came to power and a new administration was chosen. Following the well-established
sequence, Politburo members were chosen, then ministers were chosen, then vice ministers were chosen, then