Do you have your “Bug Out” strategy ready?
Are you ready for the rise of China and the decline of the US empire? We are only a matter of a few years away from the US losing the #1 economic powerhouse position in the world, and that could signal either a long economic stagnation or a fast economic collapse. Are you prepared and do you have a bug out strategy ready to keep your treasure safe?
History teaches us that empires rise & decline. Our nature, as humans, is to champion victors and celebrate wins, but we must also face the facts that the laws of the universe are cyclical. Just as things rise, things must fall. The best example of this are waves of the ocean and I’ve written extensively about this as also factors of market cycles. Things go up and things go down. And there are always more losers than winners in competitions.
But what if those cycles, over much longer periods, affected entire countries? Well there is a lot of history supporting this. Although none of us remember it, the fall of the Roman Empire was probably the most prolific of these cycles and is taught as historical fact in all schools. We’ve also seen this with dynasties in China, the middle east, Central America, etc. The rise of the Aztecs in Mexico was incredible, but really only lasted a short period of time until the Spanish conquered that territory.
Since the 1800s, the rise & fall of empires has centered around technology and energy. In the 1800s, the British empire had a resurgence due to the newly discovered power of steam as an energy source. This lead to the industrial revolution, where human labor now added value to automation, granting enormous power and wealth to the owners of the machines - in this case the British. As those machines started to expand into global territories, the British power waned but in the late 1800s & early 1900s, the discovery of fossil fuels, particularly oil, as a more portable fuel source gave rise to the United States as an empire. It was due to the portability of this fuel source that the internal combustion engine emerged as a better fuel source, giving rise to factories running on oil fed automation and finally the most obvious form of this - the motor vehicle. Henry Ford mastered the art of creating a consumer friendly vehicle, and that led to the rise of the United States as a super power throughout the 20th century.
The United States was called in to save the world, on multiple occasions. In World War 1, it was a late entrant to the “greatest War” in which we saw the first major conflict that relied on technology. Those with the best tanks, ships, planes, etc. won that war. Although millions died in battle, it was the technology that declared the victor. This repeated again in the 1940s with World War 2, and again the United States was a late entrant. But the power of the internal combustion engine declared the victors of that war, and eventually the end of the Pacific campaign was determined by yet another new energy source - nuclear power.
The destructive power of the nuclear bomb declared the first to master it as the victor in that campaign, and the race to obtain it was close. It was the defecting nuclear scientists of Germany that accelerated the power of the United States. Imagine if those same scientists had not defected and the Nazi regime had the power of the nuclear bomb. The world would look very different today than it turned out.
The creators of the H-Bomb were the victors that obtained the spoils. The United States established the Bretton-Woods treaty and became the central pillar of stability and power in the world. Not only did it underwrite most of the western economies that signed up to that treaty and ratified it, those that did not didn’t do so well. The USSR did not ratify that agreement, although it shared in the victory of the European conflict of the 1940s, yet despite its massive losses of life in the eastern campaigns, it didn’t have the technology at the time to rival the USA. Yet it was hell bent on obtaining those technologies, thus began the space race and the eventual Cold War, where nuclear power and weapons determined the “super powers” of the 20th century.
It wasn’t, however, an H-Bomb that signaled the collapse of the USSR in 1991. It was money. Simply put, the USSR could not sustain itself financially and didn’t have the alliances in economics to keep it afloat. The costs associated with its entry into its own Afghanistan war were so severe, along with general domestic economic slumps that it eventually collapsed under its own weight. This led to a decade of suffering, the rise of the “black market” and local Mafioso like cartels, and eventual leadership by authoritarian rulers that looked more like the Soviet leaders of decades gone by than democratically elected leaders by the citizenry. Yet the stock pile of nuclear arsenal remained and the world continued to fear the risk of nuclear war.
These events are relatively two dimensional - it is pretty obvious what led up to the collapse of the USSR. However in the case of the 21st century, we are seeing a new rising super power - China.
The rise of China was a long thought out strategy. There are thousands of years of history of rise and fall of dynasties in China. Yet in the 21st century, due to technology, now the reach of those dynasties are far & wide. China recognized the power of population - 1.3 billion people. The largest country population in the world. And a population who would do the bidding of the leadership, even if that meant working for 30 days straight without a day off, often for 12-14 hour days, away from family, etc. to ensure the financial prosperity of their own domestic needs, but also the will of the state.
While the hunger of a rising empire drives it to growth, it seems that this can only come at the decline of another. And in this case, it appears to be the United States. The United States has taken the ingenuity and creativity of the people, based on a liberty & freedom doctrine of its constitution, and benefited greatly over the 20th century. However it now appears slovenly, fat and uncompetitive. This is so obvious when one sees the Netflix Documentary “American Factory” in which the decline of the USA is compared with the rise of China.
Over the past 40 years, it has been rare to see the USA victorious in battle. With some exceptions, such as the first Gulf War in Iraq, no other conflict since World War 2 has been successfully won by the USA. Korea never ended, resulting in the split personality of the North & South Koreas, Vietnam was a disaster, the 2nd Iraq war & the conflicts in Libya have not resulted in anything more than regime change to power vacuums and the ongoing conflicts continue. Afghanistan appears to be a strategic setup to deplete wealth, with recent reports showing the total fiscal costs of that conflict at around $6 Trillion dollars. A small group of terrorists have played the USSR strategy here, to deplete wealth and hope to collapse a super power. Will they succeed? It seems they have simply planted a seed here and it is the super power that will determine their own future based on their global actions.
Will history repeat?
Yes. The reality is that in a few short years, China will take the baton from the hands of the USA as the biggest super power in the world. Psychologically this will be damaging to the USA. It has enjoyed 100 years of super power status, has stepped in to try and establish world peace, underwritten the economies of much of the world and even establishes and hosts the United Nations. Yet with all of this, the weight of costs associated with the self-declared “world police” status has meant that debt has become unsustainable.
The will of the people in the USA is not to pay down national debt, but to ignore it. Politicians are never held to account by raising taxes. They enjoy continual re-elections based on doing the polar opposite of what would be in the best interest of the citizenry for the long term. Like a fast food drive through, it isn’t what is best for the health of the nation but what is best for the “feed me now” needs of the nation. The results are the the USA has obesity issues, diabetes and rather than the willingness of become responsible custodians of these issues and doing the hard work to fix it, the common phase of “kicking the can down the road” comes with a simple shrug and a “well, what are ya going to do?” question. So the band keeps playing, while the Titanic sinks.
It doesn’t take much to push this over the edge, and there are many rising powers that would want this. Some have history and that determines their attitudes. Russia would love to undermine the stability of the USA and have unleashed a long campaign of this since the cold war era, which continues to this day. Sowing the seeds of instability is mission #1 for Russia in regards to the USA, and yet the USA plays along with this without flinching.
However the biggest issue is going to come from China.
China have been openly amassing a large alliance based on dependency for decades now. Even allies of the USA, such as Australia, are now so dependent on China that if pushed to rethink their alliance, they would have no hesitation in joining China because they have no choice. The same unfortunately is true in the USA. All products these days are made in China and that means to detach from trade would be a disaster. No other trading partners have been able to step up to the level that the world’s largest population have. Similar sized populations such as India have not successfully been able to organize their offerings to be competitive with China, and although the USA has lower priced labor right on its doorstep with Mexico, it seems hell bent on disrespecting its neighbor to the south, even though much of its own territory was Mexico on a short time ago.
Although the US media will tell the story of the rise of China, it never seems to come with the innevitable decline of the USA as the cost of that rise. Yet this is the way of the universe. One power’s rise comes at the expense of another. And in this case the rise of China will come at the expense of the USA.
The expense will likely take the form either as a long stagnation, like Japan has experienced, or a quick collapse, like the USSR. Neither is a positive for those living in the USA or those that are tethered to the USA. And due to Bretton Woods and the $USD as the “world backed currency”, other nations may start to detach. The problem here is that the $USD is only backed by the Good Faith & Trust of the United States, and if that is eroded, then other nations will look to other ways to underwrite their currencies.
In the past, this was typically done with Gold. But like the shifts of power that occurred in the 20th century due to technology as we saw in WW1 and WW2, it could be that very same technology that allows other nations to detach.
And that technology appears to be the Blockchain.
There has never been a time in history when a country could establish itself with its own currency that would be stable, simply because of technology. Yet today a nation can establish stability using the power of mathematics and decentralized consensus and validation that comes with crypto-currencies. The reason this has not been adopted, however, is that the bulk of the “mining” (or validation of transactions) is being done in..... China.
Yes, China saw this coming and covertly underwrote all the Bitcoin and blockchain mining. They created the technology of the ASIC miner so that they could have a power position over mining and now they control the power of concensus. Yet that doesn’t seem to stop many nations that are being forced to find more stable and alternative currencies.
Argentina, for example, has a long history of currency hyper-inflation and devaluation, and as a result is one of the emerging countries that see Bitcoin as a viable trading alternative. With newer technologies like the Lightning Network, transactions can be settled quickly and affordably which was not something that could be done a few short years ago. Iran has just announced its own national crypto-currency to detach from the $USD due to trade sanctions and dependency on the “petro-dollar”.
Again, you can see the correlation here. The rise of the USA over the 20th century was based on energy sources - petroleum for the most part. By backing all trades on oil, it controlled much of the world. But with newer emerging trends away from fossil fuel technologies to renewables, and the decentralization of power availability that comes with that (everyone has equal access to the sun and companies like Tesla are attempting to “open source” energy to the people now), the energy importance of petroleum is waning. And with that, the power of the petro-dollar is waning. And with that, the power of underwriting the world’s currencies is waning.
The economic bug out strategy
The question really comes down to whether the waning super power status of the USA will be one of slow stagnation and decline, or fast collapse. It seems to me that this depends entirely on China. China hold a lot of US debt, and could sell that off on the world market quickly. They have already diluted that holding down about 30% from previous highs, and are likely to continue that process. And the USA is heavily in debt. If it defaults on that debt, and may be left with no option other than to do that, the n the “Good faith & trust of the United States” will ripple out to other countries who will be forced to detach their currencies from the $USD, further collapsing the $USD.
But the band plays on... on the deck of the Titanic, it would seem. The media happily tell the story of the “record DJIA stock market” and “best economy ever”, parroting the political wishes of the White House. Yet 78% of all Americans can’t get through financially each month without leaning on banks and taking on debt. The divide between rich & poor is wide and the general undercurrent is becoming ever and ever more hostile. Citizen is being pitted against citizen in what can only be described as the looming first round of a cock fight that won’t end well.
This is further heated in election years and we are about to enter another one. This one will be more brutal and extreme than the past election year, and 2016 was no picnic. Physical violence was rampant - not just at campaign rallies, but with the rise of fringe elements that trade in the currency of hate. Again, 2020 offers a path towards amping up that hatred for those that see benefit in it, and for external powers it further offers a way to promote an undercurrent of insecurity. The USA that has been successful in the use of technology as a weapon in the 20th century runs the risk of having that same technology used against them, in particularly cyber security.
In the quest to create new technologies, the cost of that creation was never correctly analyzed. Ask any software engineer and they will tell you that the true cost of a “system” isn’t what it costs you to build it, but what it costs you to own & maintain it over time. The same is true in the world of ship building. It isn’t as expensive to build a new ship when compared to the cost of refitting it five or so years later. And the technology has been built and disseminated into every US person’s home, car, portable smart phone, and even their identity is defined by it in the cloud, on social media, etc. These are gaping holes for security attack and it doesn’t take much to leverage that weakness. The out of control hunger for creating new technologies comes with it the real cost of ownership of those technologies - a cost many Fortune 500 corporations never truly calculated.
So what do you do? Simple. Diversify. The reality is that when there is economic uncertainty, move to higher ground. I make sure to keep at least 25% of my assets in gold & crypto currencies. And I may increase that position going forward. Being able to move currencies around is important, and that can become a key part of being able to keep your treasure.
Yet I also see that with decline, there is opportunity for those to rise out of the ashes and become enormously wealthy. As assets are forced to be sold for pennies to cover someone’s ability to eat, if you had your treasure sheltered from loss you would be in a prime position once the dust settles to swoop in and acquire assets. I’m talking failed businesses, real estate, and other “real” assets - not paper assets like stock holdings, bonds, etc. Those will be worthless. But real things that people need.
Smart Income opportunities
I get asked by people how they can afford the down payments to acquire income producing assets. Well the inevitable decline will signal opportunities and yet by focusing on low level Maslow’s hierachy tiers, you can start with smaller purchases of things like vending machines, etc. and move your way upwards. But consider that if one asset is available to be purchased at a discount now, what will be valued highly in times of crisis? The gains on those assets you can obtain inexpensively now may be enough to acquire the higher end real estate assets you will want for the long term.
Remember, no matter what economic conditions prevail, everyone needs a roof over their heads.
It is for these reasons, that we have started to apply for temporary residency status on other countries, beginning with Mexico. The past war-cry of the Trump administration of “Build a wall” signaled to me, not a method of keeping others out of the USA, but a risk to US residents of being jailed in. We see this with US tax policy regarding worldwide income. All US “persons” are required to file tax returns until the day they die, and must report all worldwide income as if it was earned in the USA.
However there are some exclusions that only those that live outside of the USA have access to. Those exclusions may be enough to justify all the paperwork, but at least finding a country that welcomes you to their land - ideally where you purchase real estate and support their economy in some manner, is going to be a bug out strategy that should be pursued.
That’s what I’m doing. I suggest you look into it. You might want to reach out to the great Nomad Capitalist, Andrew Henderson to get fast tracked into this process.