Building the new order Entry 1

I begin here another new series of entries. To new readers I say that I call it a “series of entries” because I do not use the concept of articles (without a common thread between them), nor that of a book, which requires having the table of contents clear from the beginning and the book finished before publishing it. What I do is to write an entry, disseminate it to my readers, and write the next one based on the opinions received and my studies. In other words, it is something similar to a collective and improvised book, with a thread between the entries, but without a script. I admit that I am liking the formula, … and it helps me to think.

In this case, I have decided to give this series the common title of “Building the New Order“. That is because in the previous series I have come to the conclusion that the structure of functioning of the world we have been using (or suffering, or simply living) has been exhausted. Today it can be said that it has not died yet, but that it is in the palliative care room, waiting for the moment. And the new one, not yet designed in its details, is about to come on stage.

I do not aspire to give advice to those who have to design this new world. In fact, I would like to, but I know I don’t have anywhere near that capacity to influence.

But I do aspire to try to know as soon as possible what they are going to do. If I succeed, I will make better decisions for my personal adaptation to the new times. And I will share them with the readers to try to make it useful for them as well.

Myopia.

Pedro has suggested a very descriptive simile for trying to guess the future.

He says that myopes see poorly at a distance, but well up close. He argues that, in terms of adapting to the new world order, the majority of the population is myopic. They identify the short term well, based on the old rules, but see the long term very blurry, due to ignorance of the new rules (or their refusal to accept them).

I think there’s a lot of that, and I’m going to try to find the right prescription glasses during these new entries.

I make the personal comment that, as far as eye vision is concerned, I have always been farsighted, which is the opposite of nearsighted (what we see badly is what is near). It makes me laugh to think of Pedro’s simile in this light. Perhaps it is true that I have spent my life living the future instead of the present. But that is a matter for psychoanalysis, as well as a very personal one. I will give the matter some thought, without being a matter for these entries.

Gambia.

Since, at the end of entry 12 of the series “War – second phase” I came to the conclusion that the world was going to change almost already, and I noticed that I was still living by the rules of the old world, … I decided that it was good for me to take a break to think. And that I had to do it in a place that worked with other rules (even if they are also old, the fact that they are different helps to think). The fact is that I happened to be with a friend who was very well introduced in Gambia (thank you, Manuel) and I went there. The goal was not tourism, but to get away from the conventional to facilitate different thinking. I can say that I think I achieved the goal (besides having a good time).

Bretton Woods and Yalta.

The way in which the order that now ends, at least financially, was born at the Bretton Woods conference, which took place in July 1944.

As for the policies of blocs of countries, the order was defined at the Yalta Conference, which took place in February 1945.

It is very significant to realize that, on both dates, WWII had not yet ended, which ended in Germany on May 8, 1945, and in Japan on August 14 of the same year. But its end was already so clear, that everyone began to define the future.

Something similar is happening now, although the corresponding conferences have not yet been convened.

Regarding the new Bretton Woods, there is an article with a lot of data and historical analysis here. I like the way he defines the current situation, saying that we have gone from a financialized economy to an “asset manager society“, in which the top financiers own everything: our homes, the offices where we work, the energy companies that power them, and even the hospitals where we die. He calls it “neo-feudalism,” and makes the ironic joke that it is, indeed, “diverse and inclusive.” In the end, he concludes that it will be necessary to break existing agreements (of all kinds), and that it is not known whether this will be done more successfully by China or the West.

The characteristics of the new order.

I have talked a lot about that in the previous entries. It does not seem logical to me to make here a total cut-paste of what I said there. However, for those who want to refresh their memory, I suggest you reread entry 7 of my last series, where I tried to summarize based on my conclusions from the previous entries.

For those who have less time (or desire) I extract here the fundamental ideas of what was said in that entry:

“… I take it for granted that the War is going to end, relatively soon, in a provisional and botched peace, something they will call a ceasefire, or low intensity warfare.”

“What is certain is that Ukraine will have to surrender as soon as the USA withdraws support (which is about to happen), and Russia will do what China (which seeks peace) says.”

“After this peace, the world will be divided into two blocs of countries, not completely incommunicado, but on the way to it. … these worlds will coexist. The West will be dying and China will be growing“.

“As the powers are balanced, and as China is not in a hurry, the normal is that change will be slow, without great War. China will accept the balance in the meantime, before seeking total hegemony. It will let the West suffocate little by little.”

“The middle classes in the West will drop in quality of life, while the lower classes in the world near China will become lower-middle classes.”

“That means that the social order in the West will be very disrupted, because of the anger of its population losing quality of life, while the opposite will happen in the other bloc.”

“In the meantime, Europe will be left completely powerless, and irrelevant in major geopolitical decisions.”

“The “financialized” economy will end. The dollar, the banks, and the financial structures are going to lose a lot of power.”

“We will give the power back to those who control production, which will not be the manufacturers, but those who have the data to know what to sell, and how to convince buyers. That is, the technology companies.”

Of course, the above is what I thought at the time, with the evolution of events available. Of course, new events may modify the result a little. That is what we will try to observe throughout this new series of entries.

Issues to be discussed in depth.

As this is the first entry in a new series, I will not do my usual “relevant news since last entry” section.

What I am going to do is to state the issues that seem to me to be important in the definition of the new order, and about which I have read things that have interested me. In the following entries I will try to go deeper into them. Of course, depending on new news and readers’ comments, which I have already said is the way I have of writing this “book without previous index”.

They are as follows:

China-US Relations.
Thomas Friedman (who is a reference person in analyzing global trends, and who already got it right with his book “the earth is flat”) has written a good article in the New York Times (here).

He comes to say that the central problem is that trust has been lost between the two countries, and that this is a big problem.

He says that the theory that China will collapse economically and the USA will maintain its “empire” is a fantasy. He also thinks it is false that Europe will continually follow US instructions regarding the relationship with China.

He focuses a lot on demonstrating that the China of the past, which produced cheap goods, was one thing, and the China of today, which has even better technology than the USA in many niches, is another.

He also says he has been told that Xi told Biden that “he doesn’t plan to be the president who lost Taiwan, that if he is forced with that, there will be war. That he is playing with fire.”

War for Taiwan.
There is a lot of talk about this possibility. I think that, if China would like to do so, the current moment is right, since the West is running out of armaments due to the Ukrainian War, and without economic strength due to the crisis. Although I also think that, if China is not in a hurry (which seems to be the case), it would be better for it to wait a little longer, so that the Ukrainian War drags on and further spoils the West’s armament reserves and its economic strength.

I’ve seen a sensationalist, but substantiated article here. It bases much of its arguments on the views of Senator Mike Gallaguer. Among other things, he says that Xi is thinking of invading Taiwan in 2027 (I don’t know where he gets the date from).

Inflation.
We have all seen a thousand news items about inflation. They usually summarize it in one figure per country, which is a mistake, because different items have different inflation, and it does not affect those who consume in one way the same as those who consume in another, nor does it affect different social classes.

The very concept of inflation is outdated in its approach, and makes us lose focus on what is really happening.

I really enjoyed Zerohedge’s article on Bill Holter (viewable here).

Among other interesting things, he says:
- “We will have inflation in the things we need, and deflation in the things we own.” I think it’s a great approach that gives a lot of food for thought.
- He believes that the dollar will lose 50% of its purchasing power; and that it will lose its ability to be accepted as a means of payment in the rest of the world.
- And that gold is going to “break” the Fed, which he thinks is going to be a sudden event.

Gold.
It is clear that it is rising in price. This is closely related to inflation and the loss of confidence in the dollar.

The folks at Visualcapitalist give us a very interesting chart here.

It can be seen that central banks have recently become major buyers of gold, when they used to be sellers. Relevant to see that the central banks of China and Russia account for more than 50% of the amount bought. It is easy to deduce that they like it better than the dollar, especially after the sanctions on Russia because of the War on Reserves in other central banks.

Levi Borba publishes a good article about gold on Medium (here). He comes to say that historically gold is 30% of the money supply, and that it is now below 5%. His conclusion is that very soon gold will go up a lot (or currencies will lose value, which is the same thing).

The graph comparing the different reserve currencies since 1250 is very significant.

The stability of the banks.
After the last recent bank failure, which was that of Credit Suisse, we have had a few days of tense calm.

The media tries to send the message that everything is under control and fixed. That there is solvency.

The truth is that there is not, nor can there be. The system is dead, but they are trying to avoid panic by manipulating public opinion.

I have said above that here I am only stating the issues. I will go deeper in the following entries. So, we will see the details later, but I am describing below the basic points of the banking problem.

The fact is that, by definition, any bank fails if it suffers a large and sudden withdrawal of deposits. That is because the money they have (and the money they create) is held in short-term customer deposits, and banks invest it for the long term. If they suffer withdrawals of deposits, they cannot compensate them quickly with cancellation of long-term investments or loans granted. In that case, balance sheets become very complicated, especially remembering that banks do this with very small equity compared to the money they move. In other words, any loss destroys their equity and puts them in a situation of bankruptcy.

The truth is that banks’ investments, apart from loans granted, are very much focused on public debt. And that debt, with interest rate hikes, has to be sold at a loss if you need to sell it before maturity, which is what banks need to do in the face of deposit withdrawals.

For this reason, in the face of inflation, which is not going to be corrected, and the rise in interest rates, which are not going to come down soon, the situation of almost all banks is one of imminent bankruptcy (if they have funds withdrawn, but not otherwise). For the same reason, what they are doing is investing a lot in marketing to try to transmit tranquility. … We will see how long they succeed.

On the other hand, what I said above is the short-term problem. The long-term problem is that technological changes make conventional banking inefficient. Its function of connecting savers with credit seekers can be done much better today by those who control the data (technology). In this regard, the recent news of Apple creating something similar to current accounts remunerated at 4% is very significant (news here, and in many other places).

The total bankruptcy of the financial system would be a disaster. Its continuity as it is is almost impossible. The solution is for them to be bought (or replaced) by a new operator. It looks like it will be the technological ones.

The “signing” of countries for each block.

In the situation in which we find ourselves, that of creating a world of two blocs of countries with very little relationship between them, there are many countries still undefined as to which bloc they will belong to.

There is going to be a kind of auction by the leaders of the blocks to convince them to go with them. Especially if they have relevant raw materials.

The rigidity of the new iron curtain.
The degree of commercial connection between the future blocs of countries remains to be defined.

Whether it is stricter or less strict will greatly influence the economic organization capacity of each block.

This is a very important issue. I will investigate it to the extent that I can, and I will share it. I advance that I think the rigidity will be great, because they are going to have such different economies that the exchange prices between them would be in the style of “dumping”, so they will Exchange only the essential.

The police of the seas.
In the world that is coming to an end, the USA was more or less doing that job.

Now, that is not going to be accepted globally. However, there is a greater need than ever for someone to play that role.

It is necessary because with the new technologies it is very easy for “the bad guys” to know where each ship is, and to know if they are interested in attacking because of its content. Before, it was more difficult for them to find each other (almost by chance), and whether they liked the content was a lottery. Although it is clear that if something was transported it was because it had some interest.

The fact is that maritime transport moves 90% of world trade (news here). And that cannot be unprotected.

Perhaps one solution is to create a global agency for that. A sort of UN blue helmets to guard the seas. With acceptance of its rules by the two large blocs of countries that are forming.

Block autarchy.
It looks like that is going to be the system during the transitional epoch, before the Singularity I talk about below.

If there is block autarky, it is necessary to organize so that there are all the necessary supplies in each block. This affects mining, energy, agriculture, climate change, water availability, …

And, as it is not going to be easy to fit everything into each block, it will be necessary to facilitate some interchange between blocks, or to accept suffering where something is missing; in addition to investing in research to make up for these shortcomings with new techniques.

Recalculating route.
The truth is that it is almost clear where the world is going. We have summarized it above and commented on it in previous entries.

But it is not at all clear how we will get there. What will be the most appropriate and least painful route.

My friend Eva says that we can make a simile with the way GPSs work, which, when we take a wrong route, put the message: “recalculating route”, and soon give us the new alternative.

It is possible that, in this changing world, the route may have to be recalculated on many occasions.

Singularity.

This is another matter that I only want to mention today, but it is so important that I am giving it its own epigraph.

In mathematics, the point of singularity is the point at which the validity (the curve) of one equation ends and that of another begins. In sociology, we are beginning to talk about the fact that we are at such a point, of a total change of rules.

Some say that this will happen with artificial intelligence, when these intelligences replace human labor (even intellectual labor). It could be, and that time is not so distant.

I believe that it can happen even earlier. It seems to me that the system we have been living in for a little over two hundred years, which is the one derived from the industrial revolution, has already become obsolete (without needing to wait for the success of artificial intelligence).

Today we are in the next revolution, which is technological, that of knowledge (the thousand consequences of the existence of the Internet).

And, the social structures of the industrial revolution do not work with the technological revolution. Almost everything will have to be changed.

I have been dealing with this issue since my first writings. Already in entry 1 of “Thinking 2020” I talked about the Internet as the root cause of all the changes.

For example, the very concept of democracy as we use it today is something that worked after the industrial revolution. It is no coincidence that American independence and the French revolution were very shortly after the beginnings of the invention of the steam engine, which is considered the beginning of the industrial revolution. And democracy proved to be effective for that industrial age.

Before that time, we were in feudalism, which some countries abandoned early and others later. In that system, democracy could not work.

New systems will now begin, which will probably call into question the effectiveness of democracies, and even the existence of the concept of a country as we know it.

I will go into this in more detail later on, but I will advance that I believe we will live through a transitory stage, in which the slow death of the old order will be organized, and the equally slow birth of the new one. In reality, nothing very different from what happened after the industrial revolution. Feudalism did not end immediately everywhere; it even coexisted with the new times in the most advanced places. In fact, George Washington was an exponent of the semi-feudal society of large American plantations.

And, in this transitional period that is now upon us, without the new world being well defined, and without the rules of the old one being applicable, I believe that these will be times for the “adventurers”, who will live without clear rules and will define the new ones, with little attention to the opinion of the people. Because, if people don’t know where we are going, their advice is not worth heeding.

When we have arrived wherever we are, we will need that advice, but not on the way. For example, if Columbus had applied democracy inside his ships, they would have turned around, and would not have reached the New World.

*****

As I said above, all that I have said today are only statements of issues that I intend to go into in more detail in the following entries. Let’s see what I can deduce in each case, …

This is as far as I go for today.

As always, I welcome comments at my email pgonzalez@ie3.org.