The Decline

The decline comes from internal economic weakness together with internal fighting or costly external fighting or both. Typically, the decline comes gradually and then very suddenly. When debts become very large, and there is an economic downturn, and the empire can no longer borrow the money necessary to repay its debts, the financial bubble bursts. This creates great domestic hardships and forces the country to choose between defaulting on its debts or printing a lot of new money.

It always chooses to print a lot of new money. At first gradually, and eventually massively. That devalues the currency and raises inflation. For the Dutch, this was the financial crisis brought about by financial excesses and paying for the Fourth Anglo-Dutch War. Similarly, for the British, it was paying for its financial excesses and its debts from the two world wars. And for the US, it's been three cycles of debt, finance, booms, and busts since the nineties with the central bank stepping in each time with stronger measures.

When the government has problems funding itself, when there are bad economic conditions and living standards for most people are declining, and there are large wealth, values, and political gaps, internal conflict between the rich and the poor, as well as different ethnic, religious, and racial groups greatly increases. This leads to political extremism that shows up as populism of the left or the right. Those of the left seek to redistribute the wealth while those of the right seek to maintain the wealth in the hands of the rich.

Typically during such times, taxes on the rich rise and when the rich fear their wealth and wellbeing will be taken away, they move to places, assets, and currencies they feel safer in. These outflows reduce the empire's tax revenue, which leads to a classic, self-reinforcing, hollowing out process. When the flight of wealth gets bad enough, governments outlaw it. Those seeking to get out begin to panic. These turbulent conditions undermine productivity, which shrinks the economic pie and causes more conflict about how to divide the shrinking resources.

Populist leaders emerge from both sides and pledge to take control and bring about order. That's when democracy is most challenged, because it fails to control the anarchy, and it is when the move to a strong populist leader who will bring order to the chaos is most likely. As conflict within the country escalates, it leads to some form of revolution or civil war to redistribute wealth and force the necessary big changes.

This can be peaceful and maintain the existing order, but it's more often violent and changes the order. For example, the Roosevelt revolution to redistribute wealth was relatively peaceful and maintained the existing internal order, while the French revolution, the Russian revolution, and the Chinese revolution were much more violent and led to new internal orders. This internal conflict makes the empire weak and vulnerable to rising external rivals who, seeing this domestic weakness, are more inclined to mount a challenge.

This raises the risk of great international conflict, especially if the rival has built up a comparable military. Defending one's self and one's empire against rivals requires great military spending, which has to occur as domestic economic conditions are deteriorating and the empire can least afford it. Since there is no viable system for peacefully adjudicating international disputes, these conflicts are typically resolved through tests of power.

As bolder challenges are made, the leading empire is faced with the difficult choice of fighting or retreating. Fighting and losing is the worst outcome, but retreating is bad too as it cedes progress to the rival and signals that the empire is weak to those countries that are considering which side to be on. Poor economic conditions cause more fighting for wealth and power, which inevitably leads to some kind of war.

Wars are terribly costly. At the same time, they produce the tectonic shifts that realign the new orders to the new realities of wealth and power in the world. When those holding the reserve currency and debt of the declining empire lose faith and sell them, that marks the end of its big cycle. Of the roughly 750 currencies that existed since 1700, less than 20% now exist, and all of them have been devalued. For the Dutch, this happened after their defeat in the Fourth Anglo-Dutch War, when they weren't able to repay the massive debts they built up during it.

This led to a run on the bank of Amsterdam and a desperate sell off, forcing massive money printing, which devalued the currency and the empire into irrelevance. For the British, this happened after World War II, when despite their victory, they could not repay the massive debts they borrowed to fund their war effort. This led to a series of money printing, devaluations, and selloffs in the British pound as the US and the dollar emerged dominant and created a new world order.

At the time of this recording, the United States hasn't yet reached this point. While it has massive debt, spends more than it earns and funds this deficit with more borrowing and printing huge amounts of new money, the big sell off in dollars and dollar debt hasn't yet begun. And while there are great internal and external conflicts occurring for all the classic reasons, they've not yet crossed the line to become wars.

Eventually out of these conflicts, whether they're violent or not, come new winners who get together and restructure the losers' debts and political systems and establish the new world order. Then the old cycle and empire ends and the new one begins and they do it all over again. That's a lot of detail I just threw at you to paint a picture of how the typical big cycle transpires. Of course, not all of them transpire exactly this way, but most largely do, so much so that it seems like the stories of rises and declines stay essentially the same and the only things that change are the clothes the characters wear and the technologies they use. So, where are we heading?