there is confidence that you will not have unacceptable losses, so you must think hard about what you will
really fight to the death for.
While I am primarily focusing on US-China relations in this chapter, the game we and global policy makers are
playing is like a multidimensional chess game that requires each player to consider the many positions and
possible moves of a number of key players (i.e., countries) that are also playing the game, with each of these
players having a wide range of considerations (economic, political, military, etc.) that they have to weigh to make
their moves well. For example, the relevant other players that are now in this multidimensional game include
Russia, Japan, India, other Asian countries, Australia, and European countries, and all of them have many
considerations and constituents that will determine their moves. From playing the game I play—i.e., global macro
investing—I know how complicated it is to simultaneously consider all that is relevant in order to make winning
decisions. I also know that what I do is not as complicated as what those in the seats of power do and I know that I
don’t have access to information that is as good as what they have, so it would be arrogant for me to think I know
better than they do about what’s going on and how to best handle it. For those reasons I am offering my views with
humility. With that equivocation I will tell you how I see the US-China relationship and the world setting in light
of these wars, and I will be brutally honest.
The Positions the Americans and Chinese Are In
As I see it, destiny and the Big Cycle manifestations of it have put these two countries and their leaders in the
positions they are now in. They led the United States to go through its mutually reinforcing Big Cycles of
successes, which led to excesses that led to weakening in a number of areas. Similarly they led China to go
through its Big Cycle declines, which led to intolerably bad conditions that led to revolutionary changes and to the
mutually reinforcing upswings that it is now in.
For example, destiny and the big debt cycle led the US to find itself now in the late-cycle phase of the long-term
debt cycle in which it has too much debt and needs to rapidly produce much more debt, which it can’t service with
hard currency so it has to monetize its debt in the classic late-cycle way of printing money to fund the
government’s deficits. Ironically and classically being in this bad position is the consequence of the United States’
successes that led to these excesses. For example, it is because of the United States’ great global successes that the
US dollar became the world’s dominant reserve currency, which allowed Americans to borrow excessively from
the rest of the world (including from China) which put the US in the tenuous position of owing other countries
(including China) a lot of money and which has put these other countries in the tenuous position of holding the
debt of an overly indebted country that is rapidly increasing and monetizing its debt and that pays significantly
negative real interest rates to those holding it. In other words it is because of the classic reserve currency cycle that
China wanted to save a lot in the world’s reserve currency, which led it to lend so much to Americans who wanted
to borrow so much, which has put the Chinese and Americans in this awkward big debtor-creditor relationship
when these wars are going on between them.
Destiny and the way the wealth cycle works, especially under capitalism, led to the incentives and resources being
put into place that led Americans to produce great advances, wealth, and eventually the large wealth gaps that are
now causing conflicts, threatening the domestic order, and threatening the productivity that is required for the US
to stay strong. In China it was the classic collapse of China’s finances due to debt and money weaknesses, internal
conflicts, and conflicts with foreign powers that led to China’s Big Cycle declines at the same time that the US was
ascending, and it was the extremity of these terrible conditions that produced the revolutionary changes that
eventually led to the creation of incentives and market/capitalist approaches that produced China’s great advances,
great wealth, and the large wealth gaps that it is understandably increasingly concerned about.
Similarly destiny and the way the global power cycle works have now put the United States in the unfortunate
position of having to choose between a) fighting to defend its position and its existing world order and b)
retreating. For example, it is because the United States won the war in the Pacific in World War II that it, rather
than any other country, will to have to choose between a) defending Taiwan—a place that most Americans don’t
know where in the world it is and can’t spell its name—and b) retreating. It is because of that destiny and that
global power cycle that the United States now has military bases in more than 70 countries in order to defend its
world order even though it is uneconomical to do so.