Assassination Attempt on Trump: Internal Disorder and the Fall of an Empire?

Posted by Gavin Chau

The recent assassination attempt of US presidential candidate Donald Trump is one of the clearest signs of the internal disorder America is currently facing. While I don’t want to speculate on how this massive security breach happened, internal disorder and the rise of populism are two key features that precede the demise of hegemonic power. While the word ‘populism’ has been thrown about as some kind of a slur by the mainstream media, in simple terms, it just describes ‘democracy that the elites don’t like’!

Like all living things, an empire has a life cycle. It starts young and weak and overlooked; it needs nurturing and hard work to build it up, then it grows strong and looks unstoppable; at its peak, it becomes overstretched militarily, while internally, it is overrun by parasites which finally suck the lifeblood out of it. In the end, it declines, and in its final throes, it loses its reserve currency status, which it relied on for its ascendency. The US empire is closer to the end than the beginning.

One of the most fascinating books I’ve read is Principles of the Changing World Order by Ray Dalio, a legendary macro investor. Within that book, there are two or three graphs that I keep returning to over the years simply because they have been such a useful framework for viewing the unfolding geopolitical events. They bring a level of clarity that has eluded both the mainstream media and other finance and political commentators. This is one of them, and it describes the life cycle of a hegemonic power (which in the current era, of course, is America).

It’s quite clear that we are in a stage of history that sits somewhere between steps 15 (Internal Conflict) and 17 (Weak Leadership) on that chart. In this blog, I spoke briefly about Number 16 (Loss of Reserve Currency), with the Saudis refusing to renew their 50-year agreement to only trade in USD for oil.

The interesting part about this is that each time an empire has declined, it has amassed large debts while at the same time allowing the country’s productive capacity to decline to the point where it has no hope of ever paying them off. So, it just fires up the money printer and debases the currency. We see this as asset prices rising faster than incomes while living costs go through the roof. Sound familiar?

We can see this flowing through the data, with aggregate spending by renters falling behind that of homeowners. Similarly, consumer confidence in renters has declined, with those who own their homes outright rising above those with mortgages and renters. In the long run, the wealth divide between asset owners and non-asset owners continues to grow to the point that the middle class is hollowed out. During these periods of accelerated monetary debasement, the only way to protect your wealth is through owning hard assets such as land and factories that make real things.

Posted by Gavin Chau, on 16th Jul 2024