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Dalio's broad strokes thesis that US will decline and China will take over is right iff there is sufficient trust in the PRC's monetary, judicial, and fiscal infrastructures. USD took over from the pound sterling not just because the UK was exhausted post-WW2, but more that major global market participants trusted US institutions from US soft power projection, and were comfortable transacting in USD under Bretton Woods. For Dalio's thesis to bear out, he needs the PRC to convince major global market participants and other nations that a PRC-chartered, RMB-led Bretton Woods 2 (or equivalent, because history rhymes) makes more sense to follow than the current status quo. The challenge is the PRC has a significant soft power projection PR image issue on its hands at the moment with a lot of perceived bellicosity by not just its regional neighbors, but increasingly around the world. The US during its post-war ascent was significantly involved in many domestic political knife fights in other nations, outright regime changes, or military engagement that are interpreted as bellicose by some standards: Greece, Italy, Albania, Syria, Burma, Egypt, Iran, Guatemala, Indonesia, Korea, Vietnam, Cuba, Congo-Leopoldville, Laos, Dominican Republic, Brazil, Iraq, Cambodia, Chile, Bolivia, Ethiopia, Angola, East Timor, Argentina, Afghanistan, Poland, Chad, Nicaragua, Grenada, Panama, Haiti, Zaire, Yugoslavia, Palestine-Israel, Libya, Venezuela. What is curious to me is the USSR was similarly involved, but everyone decided to trust the USD and not the RUB. I have my theories about why that happened, but to the current topic, for various reasons the PRC is not quite so extensively involved in other nations' affairs, yet their soft power image is not sufficiently strong enough to mount a credible replacement to the USD. I think part of the discrepancy between currencies and nation state dominance is acknowledgement by market participants that China's debt-to-GDP ratio is more than twice as much as the US ratio. As an investor, I also have deep reservations over the long-term with how China organizes its public financing from land sales (I think they're vastly underpricing the sales). Dalio makes a compelling case, but hand waves away the above issues with "China will grow out of these temporary nitpicks". I suspect Jiping's administration played China's hand too soon; if China had stuck to its mercantilist knitting for another 2-3 decades, I believe it would have made a compelling and persuasive nation state for others to follow at the end of that period with no bellicosity involved. As it stands, I suspect the hand was played too soon because their runways of demographics, energy-debt, and food production are colliding in undesirable ways they're trying to fix by externalizing the costs. |