2.27 The Next Financial Dominoes

In the logic of the cycle, there is a well known set of dominoes that begin to fall, one by one.

They are something like:

The declining order will need to issue more debt.

Those who already bought too much, have losses, and are being repaid in worth less currency are not going to buy it.

Therefore the government gradually loses the pool of buyers for its debt.

This drives interest rates up further.

This drives the value of debt down.

This drives the printing presses faster.

This drives prices up faster.

The debt that is losing value is held as assets by the interconnected array of institutions.

The hurting institutions stop making loans in the same way as they grapple with their own risk of insolvency.

A lot of the loans they made went into commercial real estate.

Technological and cultural changes are shifting the way we use commercial real estate.

A commercial real estate crisis ensues.

Venture Capital and Private Equity companies pull back.

Entities struggling for capital in a deteriorating economy begin cutting costs.

Cutting costs leads to layoffs.

Technology replaces many of the workers laid off.

Layoffs and economic struggles lead to further pullbacks in spending.

Assets bought with leverage continue to deflate in value.

In many cases, the assets will not be marked to market, concealing the losses.

In many cases, the assets are the basis for an array of financial derivatives, multiplying losses.

This will produce short selling and a squeeze in the profit-driven capital markets.

This begins to melt down the financial system.

The government prints more money to try to bail out the system, but eventually it becomes obvious that the currency is detached from reality and worthless.

The contagion spreads around the world, as the reserve currency of the current order collapses.

Companies go out of business.

Supply chains collapse.

People struggle to survive.

The rising powers probing the defenses of the declining empire determine there is a chance of victory.

A war over the world's order and its next reserve currency ensues.

The victor makes the rules of the new world order.

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