The Big Cycle could have more of an impact on inflation than the Fed’s monetary policy.
A change in the world order cycle is underway, which has been coined as the Big Cycle by Ray Dalio, a top geopolitical macro analyst and hedge fund investor of our time.
When an existing global power retreats or appears too weak for global leadership, a power vacuum exists.
This Big Cycle, where the existing post-WW11-US hegemonic rule is contested by regional powers, often in a war, is currently underway.
In Europe, Russia is unwilling to submit to the hegemon’s rules, kneel and kiss its ring. In the Middle East, Iran’s proxies, the Huties, are disrupting the Red Sea shipping lane as the shipping crisis worsens.
Characteristics of a Big Cycle, geopolitical instability, war
To understand why geopolitical instability and regional wars are breaking out on nearly every Continent let’s analyse Europe’s roughest hood, Marseille’s Nice on the French Riviera, next door to Cannes, the playground and residency for multi-millionaires billionaires.
Marseilles is a known seaport for the narco trade in central-northern Europe. The murder rate capital, Marseilles, the most dangerous city in Europe, broke all records with 400 homicides last year, 2023.
A Rough Hood and the Big Cycle
Underpolicing has resulted in a power vacuum as the drug kingpins battle to control the streets to maintain and grow the lucrative market share, often using brutal killings and other intimidating techniques. Town Hall officials have referred to Marseille’s lawlessness run by narco street gangs and thugs as the Dark Ages and want the army called in to take control of the streets.
Big Cycle, hegmon in retreat, and the Dark Ages
Weakness invites aggression, but both tough sides also lead to war.
Weeks before Russian tanks rolled across the sovereign borders of Ukraine uninvited, western intelligence warned about tanks built up, including mobile hospitals near the Ukrainian border. Intelligence warned this was no military exercise and that an invasion was planned.
Would history have been different if NATO and its allies imposed a no-fly zone over Ukraine weeks before the invasion?
Putin may have interpreted this rightly or wrongly as NATO’s weakness, that there would be more inaction from the alliance of the wobbly knees if his tanks thrust forward and violated Ukraine’s sovereign border.
A former CIA officer described Ukraine as a headless chicken, that it is over, an entire generation of its young men are dead or have fled, its vital infrastructure destroyed and over eight million refugees.
A diplomatic compromise would have been better than a military defeat, which is what lies dead ahead.
Why did the US and its allies trash the Minsk agreements, a path to peace and prosperity, rather than a potential apocalyptic war?
Mad dogs, a hegemony of ashes with no winner.
Big Cycle, Europe’s Wider War Dark Ages
The fall of Ukraine rewards aggression, so the likelihood of this war spilling over to neighbouring countries could be a real possibility.
The hard reality could be diplomats have packed up and gone home, the bluffing is over, and the fight is on.
Brace yourselves for the Dark Ages of international lawlessness.
2024 barbarism with 21st-century technology.
Nothing is sacred. Hospitals, maternity wards, and places of worship were bombed, and the genocide of a population with at least 10,000 dead children.
Disruption of shipping lanes is part of the Big Cycle
The shipping crisis is worsening as the geopolitical situation deteriorates.
Technology disruption and the use of Drones in warfare are challenging the hegemon’s grip on power.
Since the first recorded Empire of Mesopotamia, which revolutionized water travel by inventing sails, the hegemon of the day controlled all major shipping lanes, which enabled them to shape the rules of international trade and commerce to their advantage.
Every Empire since recorded history was Naval Power, which guzzles public finance.
But Empires needed robust economies to create or extract wealth from the colonies, which provided the state’s coffers with finance to bankroll a Navy.
Moreover, because the hegemon of the day is the dominant Naval power, controlling the shipping lanes and international trade, demand for its fiat currency is global.
The exorbitant privilege of an Empire is that the world needs its currency to conduct international trade and is the preferred currency to store surplus wealth and savings because it is the least volatile of all fiat currencies.
Empires at their early stage of global power run manageable public deficits by spending more than they receive, bearing in mind global demand for its currency is buoyant. Reserve currency status in bond market terms means demand for the hegemon’s sovereign bonds exceeds supply.
In other words, the hegemon can finance debts at lower interest rates because it has reverse currency privilege and sits on the hegemon’s throne.
Big Cycle disruptive technologies cancel out the hegemon’s naval power
For the first time since the Mesopotamia Empires, going back thousands of years, technology has made the size of a Navy irrelevant to effective policing of the waterways.
A US-led maritime task force to patrol Red Sea freedom of passage has been unable to stop oil tankers from being attacked by Irianina proxy Houthi militants.
So a 10 thousand dollar drone piloted by ragg-tagg militants in sandals is making multi-million dollar warships ineffective in providing commercial fleets with protection.
Inflation and the Big Cycle
A hegemon can no longer impose the rules and becomes too indebted and incompetent to police the waterways.
In short, ongoing wars and geopolitical instability, disruption to supply lines and shipping routes is inflationary.
But higher inflation is not what the bond market needs.