The Decline of the West - and what to do

On the day of the French Revolution, when the Bastille was stormed, King Louis XVI wrote in his diary: "Rien"—"Nothing." He had returned from a hunt empty-handed—no pheasant, no deer, nothing at all. Just a few kilometers away, world history was being written, setting in motion events that would eventually cost him his throne and his life.

?Why do I tell this story?

Last week, I was invited by a subscriber to join a panel discussion. There, I talked about how empires like the United States go through life cycles. I suggested that the U.S. is now in its final phase, marked by economic, military, and especially cultural decline. Sitting next to me was a very wealthy hedge fund manager from New York. The more I spoke about the U.S., the more upset he became. He said I was being too negative—that Americans were doing well, inflation was decreasing, the economy was strong, and technology stocks would perform well for decades to come.

Surprised by his optimism, I realized something new: the world's top 0.1% often live in their own perception bubble, much like King Louis XVI did. They can't imagine what the decline of the U.S. could mean for them.

The Advanced Stage of Decline

The decline is already happening. Many financial experts see that governments, through central banks, now control the entire financial markets. For example, last week, China organized a state-led stock market rally.

Why is this happening?

Deflationary forces are moving quickly in both the West and the East. We can see this through rate cuts and direct interventions. This instability pattern of deflationary and inflationary shocks is common in declining states and empires throughout history.

For investors, this means that when prices are no longer based on real economics, the everything bubble lasts only until the state can't sustain it anymore. Then there's a dramatic reversal in the system.

The U.S. Strategy

The U.S. is trying to buy time by economically and militarily leveraging its allies. As debt continues to grow, countries like Germany and Japan are taking on more burden to keep the U.S. dollar strong, despite unsustainable debt levels. The American leadership seems to be following a classic path, choosing external crises like global conflicts to manage deficits.

In the past, war was often used as a way out, even though it makes debt grow faster at first.

Stability through expansion—the more you conquer, the more resources you have, the more stable the empire and its beneficiaries.

But controlling the world mililtarily costs a lot. When money runs low—maybe because the military isn't performing well—the currency loses value. Why would someone lend U.S. dollars at 3.8% interest when they fear the dollar might lose 20% of its value during the loan? So, interest rates have to go up, making it even harder for the government to service its debts. This is the classic debt doom loop—a sure way for empires to fall.

Looking Back

Let's recall the last global superpower, the United Kingdom. Around 1900, the British Empire ruled about 25% of the world. Today, people in England are suffering from diseases like scurvy, which hadn't been prevalent since the Middle Ages. There has been a surge in cases of scabies and measles—both highly contagious—as well as rickets, conditions we thought had been eradicated. The reason? Municipalities are cutting back on sewage treatment, and people are skimping on healthy food due to economic pressures. Had someone predicted this to a wealthy Londoner 100 years ago, they would have laughed.

The British Empire accumulated massive debts during its conflicts, especially during the World Wars. By the mid-1920s, interest payments on national debt made up >40% of government spending, even surpassing defense spending. Without adequate financial resources, an empire struggles to maintain its global influence. Experts at the time foresaw the end of the British Empire and the rise of the U.S. as the new superpower.

Back to the United States

Thirty-five years ago, communism collapsed, and the U.S. was the undisputed superpower. Eighty years ago, it emerged as the economic victor of World War II and was a major beneficiary of the ensuing global peace. Today, in certain areas, it has descended to the level of a third-world country. In cities like Chicago, crime rates have soared to levels comparable to London during the High Middle Ages. Issues like drug abuse, declining educational outcomes, moral crises, and health problems are all on the rise. US interest payments on ist debt are rising faster than defense spending. And the big war hasn’t even started yet. Sound familiar?

Is Being a Superpower a Curse?

• It was tough for Rome.
• It was tough for Portugal.
• It was tough for Spain.
• It was tough for England.
• And it seems to be tough for the United States.

The fall of empires is inevitable, no matter what the top 0.1% might think.

Current Tensions

Recently, U.S. and NATO troop transports have been landing in Rzeszów, Poland, heading towards Ukraine and beyond. The U.S. plans to send long-range weapons to Ukraine. These had been withheld before due to fears they could be used to strike deep into Russian territory. Russia has warned that any country providing such weapons is making a declaration of war. The new cold war will require enormous sums of money to create new military capabilities.

Final Thoughts

History shows that no empire is immune to decline. For investors, the key question is: Do you own real assets?

Understanding these historical patterns can help us navigate today's uncertain geopolitical landscape. It's important to consider how these shifts might affect not just nations, but also our investments and long-term financial plans.

#Inflation #Deflation #USD#CBDC #Hegemony