Building the new order Entry 3

China and India have taken a small step in changing their usual attitude at the UN. They have voted together with the West in the resolution approved last April 26 (document here, and news here).

It is a resolution calling for greater collaboration between the UN and the Council of Europe (the European human rights organization). The resolution does not explicitly deal with the war, but it does quote in one of its paragraphs: “the aggression by the Russian Federation against Ukraine”.

Time will tell whether this was a minimal concession to the drafters, or whether it is the first of other steps aimed at withdrawing support for Russia. The fact is that, until now, they had not accepted terms such as war, aggression or the like.

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The Battle of Ukraine.

The matter is very sad and very serious. I don’t want to appear to be downplaying it by calling it Battle instead of War (I keep the capital letters in both cases because of the seriousness of the matter). As I have said in previous entries (in this one, among others), the War is more global. It is for the definition of the new world order. There are many battles, some military, such as Ukraine, Sudan, or the potential one in Taiwan; and others of a different type, such as inflation, control of raw materials, …

The fact is that, at the point we are at, the need to move towards this new world order is already irreversible. Whoever wins the Battle of Ukraine, it is irreversible.

The West has become much weaker (inflation, economic crisis, banking crisis, scarcity of raw materials, polarization of society, …). And China has been strengthened by suffering much less from these problems.

Now, China can tell the world that the USA is no longer the only one in charge, and that its model of society is not the only one possible either.

Moreover, China can propose to the world to collaborate in finding a solution for all, as long as its bloc of countries is allowed to be recognized as equal to that of the USA.

Under these conditions, the way the Ukrainian war ends will only change the speed of world events a little, but not their substance. With a very big exception, which would be the case of starting a nuclear war.

Summary of the situation. Our decisions.

The world in the medium term.

As I have tried to make clear in the previous entries, we seem to know that the world order as we know it is crumbling.

We also know what is going to happen in the long term, which are the consequences of artificial intelligence (the singularity).

We have some notions of what the world may end up looking like in the transition era, in the medium term (I set them out in entry 1).

What we don’t know (or, I don’t know yet) is how we are going to get there. At what speed, and with what chain of changes and events. That is what I am trying to explore.

We do know, at least, some factors that will condition everything:

Those who are going to lose an important part of their power, are not going to do it without defending themselves until the last moment (nobody does it). I am referring to the USA as the “arbiter” of the world, to the dollar as the currency of reference, to the financial corporations as the ultimate controllers of almost everything, to the ideologies and philosophies that support the above, …

Technological advances are forcing us to do almost everything differently from the way it has been done since the industrial revolution.

The need to protect the environment also forces us to do everything differently, as well as to “internalize many costs”, which are those of avoiding, or correcting, pollution in production processes. As a result, many activities will cease to be profitable and will have to be replaced with different procedures.

Demographics has always been, and continues to be, one of the main drivers of the economy and power position. And, … demographics is focusing its growth in Asia (and a little in Africa).

I reproduce here one of the images of Pedro’s lectures because of the descriptive nature of the demographic issue:

If major social conflicts are to be avoided, it is necessary to be able to produce food for all the inhabitants of the planet, as well as to ensure that it reaches the places where it is needed. The same applies to the need for “shelter”, and many others. This will affect geopolitical alliances and negotiations between blocs of countries.

With all these changes, different mining raw materials (lithium for batteries, for example) will be more necessary than before. This will make the places where these raw materials are found more relevant.

These places will have the opportunity to “sell themselves to the highest bidder”, as well as the risk of being invaded or conquered by the new powers. That will depend on whether they value their privileged position too highly and, therefore, want to sell themselves more expensively than it costs to conquer them.

These places will occupy the positions that oil producers had in the times that are now coming to an end. Although, it must be taken into account that a newer technology may make that raw material unnecessary and, therefore, the strategic interest of that place.

All of the above affects the two blocs of countries (led by China and the USA). However, their current circumstances allow them to adapt to the new times in different ways.

Our possible decisions.

As for the decisions that we humans have to make in this situation, it is clear that they are:

To choose the way and the moment to get off the sinking ship, which is the social structure still in force. And to choose how to adapt ourselves to the new ship, which is the social structure of these times of transition. Of course, life there will not be the same as before, and neither should our actions be the same.

We have to do it being aware that we will live in that boat for the next 20 years (approx). Then the Singularity will come, and we will have to change boats again.

The 20 years is obviously imagination, but with some logic. AI development is well advanced, but it will take a long time to reach mass implementation, and somewhat longer to reach the point where AIs decide to take control away from us humans.

Choose, then, our way of living in the face of AIs control (if we are still alive by then).

Choose it as soon as possible, so that we can dedicate part of those 20 years of transition to prepare ourselves for what we have chosen.

For example, if we have chosen to live on the fringes, we should dedicate those years to prepare ourselves physically, and to learn scouting and solo survival techniques. If we have chosen to live in the underground Resistance, we will have to learn the techniques of spies and saboteurs. And, … if we have chosen to trust the AI to treat us well (as we do the pets), it will be enough to cross our fingers and be submissive, which, make no mistake, is what most of humanity has done throughout history.

Volatility and asymmetry.

Pedro, in his lectures, uses these two words to define the market situation. He is quite right.

There is great volatility in all markets. The cause is that the old rules used by the experts to deal in each market no longer work, but the new ones are not clear either. As a result, everyone is disoriented. Very knowledgeable people have very different opinions (both with reasonable fundamentals). In addition, the news is constantly changing.

Under these conditions, there is no stable pricing consensus, which implies volatility.

To describe the cause of these volatilities, I again use the example of the ships. It’s like we have a pretty big waterway. There are people who think it can be fixed, and they work at trying to fix it. They make their future (and investment) decisions thinking it will be fixed. Others think it is hopeless, and are preparing life preservers. At times the opinion of one prevails, and at times that of the other. This leads to volatility.

As for asymmetry, just look at the very different energy prices in different places. For example, those reflected in this image from Pedro’s conferences.

As energy is at the base of the production costs of almost everything, these price differences imply that the same product will be much cheaper to produce in some places than in others, which means asymmetric competition between them.

These volatilities and asymmetries lead us to have to manage almost everything in a constant improvisation with a lot of imagination (and knowledge). Just the opposite of what happened until recently, where management consisted of knowing the instruction manual well and applying it with precision.

It is not clear how long this imaginative improvisation will be useful. It will be until the new instruction manual is defined. Perhaps for a few years.

I make the comment here that this is good news for peoples like the Spanish (and almost all Mediterranean). These are peoples who have imagination in their cultural DNA, as opposed to peoples like the Germans, whose cultural DNA is based on respect for order and methods. That is why German society was very effective in the face of the industrial revolution, which required perfect coordination of everyone in the factory.

I remember something that an uncle of mine who studied mathematics used to tell me. He used to say that he could instantly recognize whether a mathematical theorem had been developed by someone from northern Europe, or by a Latin. If the theorem was developed with many steps, each of them very obvious, the author was from the north. If it was developed with few steps, difficult to understand each one, but great, the author was Latin. I never checked if his theory was true, but I find the case descriptive for today’s needs.

I think that all this is summed up very well by a phrase of Oliver Wendell Holmes Jr (American jurist). I did not know him at all, but a friend (thank you, Juancho) sent me the phrase, and it is logical to quote the author. He says: “Life is painting a picture, not adding up”. And it is true that these are moments of “painting pictures”, of imagining and capturing things, and not so much of “doing sums”, which is following the procedure.

Destabilization of almost everything

The truth is that we are at a time when almost all risk indicators are at the limit. They may have a solution, but they seem too many and too serious to be fixed all at once. Although, yes, they can still hold out for a while before exploding. How long? I don’t know, but at the end of the entry I say that Ray Dalio estimates it at three years.

These indicators speak of the general disorder of the times we live in (those of the fall of a global order). However, there is no need to panic. We must remember that, after the fall of one order, another will follow (it will be soon) and, as the word “order” implies, it will be much calmer and more peaceful. What we have to do is to protect ourselves during the storm and prepare for the aftermath.

Below are some descriptive graphs.

Global debt

The source is Zerohedge (here), where they give an apocalyptic vision, but very interesting to read. The units are the American trillion. They say that, if derivatives are included, we would reach 3 quadrillion. Puff.

And, … debt bears interest, which has to be paid. Incidentally, interest rates are higher with rising interest rates. There will come a time when company profits will not be enough to pay them. And, the time has long since come when the budgets of the states cannot pay those interests, so there is public deficit, which can be accepted some year, but not constantly.

M2 (the short-term money available in the economy).

Includes currency printed by central banks and credit granted by commercial banks.

The rise is spectacular. The results cannot be good.

Velocity of money in the USA. It is the (GDP)/M2.

Although there is more M2 (as indicated in the graph above), GDP does not grow in comparison. Moreover, to curb inflation there is a target to lower M2. Bad news.

CO2 in the atmosphere over the last 450,000 years

We are at historic peaks.

Source: Alan Urban (here). In that same article they list ten reasons why the earth is close to collapse. They do so reasonably. Of course, it is possible that they will end up being controlled by technological advances, as happened with the theories of Malthus in the early nineteenth century, who said that there would be no capacity to feed the growing population of that time, but there was because of the productive improvements in agriculture after the industrial revolution.

Empty offices after teleworking.

Source: ZeroHedge (here). The level of office occupancy in New York is above 50% of the pre-pandemic level. Equivalent to 26 empty empire states. And it is similar everywhere else.

It is essential to rethink the city, and put an end to the urban planning that said that there are areas for living, others for offices, … Everything must be compatible in all places. That is to say, less urbanistic dictatorship in terms of uses.

Commodities vs. equities.

The guys at Visual Capitalist make a very good chart (here), with which they try to show that commodities are at historically low prices relative to the stock market. They believe that important changes are coming.

To return to the mean, there is the option of commodities going up a lot (bad for inflation), or of stock markets going down a lot (also bad for the economy).

Maritime traffic.

Russia’s initiative to change routes using the Arctic based on climate change and new technologies in terms of ship design is very relevant. It can be seen here:

Readings that have interested me.

In the process of writing this entry I have come across the following issues that have caught my attention. Some of them are related to what has been discussed in this entry, and others are not, but I recommend that you check them out.

The three cities.

I found a very inspiring article on Medium (here). It is written by Luke Burgis. He develops his idea of the necessary balance between three cities (Athens, Jerusalem, and Silicon Valley are the ones he cites as paradigm). He does it in comparison with the difficult physics problem called “the three bodies” (more like three planets), which denotes the probable scientific background of the writer, because that problem is very little known in the normal world (it gave me more than one annoyance in my exams).

What he is saying is that Athens represents Reason, Jerusalem represents Faith, and Silicon Valley represents technology. He says that we have to find a balance between the three. That it is not useful to follow only the dictates of technology (which is what we do if we don’t think about it).

I think it hits the nail on the head. I recommend reading it.

Ray Dalio is back to writing. It can be seen here. He talks about China – USA relations.

Among many other interesting things, he says that they are close to the possibility of war, and that they have lost the ability to communicate effectively and trust each other. That they are building their alliances with other countries based on natural resources and economic sanctions.

He thinks that provocations will come from the US side, and he believes that China will not respond sharply for three years (I find it curious that he puts that date). He says that, after that will come the new order, where China will have a lot to say.

He says China knows it is further behind the USA in artificial intelligence, which is a problem for them.

And, he strives to recommend ways to ease tensions.

In FPIF they also talk about the China – USA conflict. They call it “tectonic movements in Eurasia” (you can see it here).

They say that China, with its “belt and road” initiative, is copying what the US did in the past with the Marshall Plan (spending ten times more money). They say that they are seeking to control Eurasia, and that they are not doing badly.

They explain that China’s goal is to promote trade and infrastructure, rather than military bases (which were very important in the Marshall Plan).

They say that all of this is taking power away from the US, and that they will end up “sitting on the sidelines trying to figure out how that loss of power happened.”

It is very interesting to see how China’s exports have evolved so far in the 21st century. It is in this graph from Visual Capitalist. The increase has been spectacular, and the destination countries speak volumes.

In the following entries I will try to study the possible evolution of different sectors of society and the economy. Let’s see if I can come to any interesting conclusions, …

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