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The Five Stages Of A Sovereign's Life-Cycle

Tyler Durden's picture


Bridgewater's Ray Dalio believes four factors drive relative economic growth: competitiveness, indebtedness, culture, and luck. The returns from his machine-like investment process clearly indicate he is on to something as he notes that the most powerful influences of this relative income (and power) are 1) the psychology that drives people’s desires to work, borrow and consume and 2) war (which we measure in the “luck” gauge).


Via Bridgewater:

Throughout history, Dalio advises these two influences have changed countries’ competitiveness and indebtedness which have caused changes in their relative wealth and power. He goes on to add that since different experiences lead to different psychological biases that lead to different experiences, etc., certain common cause-effect linkages drive the typical cycle of a nation's growth, power and influence.


To summarize, we believe that countries typically evolve through five stages of the cycle:


1) In the first stage countries are poor and think that they are poor.


In this stage they have very low incomes and most people have subsistence lifestyles, they don’t waste money because they value it a lot and they don’t have any debt to speak of because savings are short and nobody wants to lend to them. They are undeveloped.

2) In the second stage countries are getting rich quickly but still think they are poor.


At this stage they behave pretty much the same as they did when they were in the prior stage but, because they have more money and still want to save, the amount of this saving and investment rises rapidly. Because they are typically the same people who experienced the more deprived conditions in the first stage, and because people who grew up with financial insecurity typically don’t lose their financial cautiousness, they still a) work hard, b) have export-led economies, c) have pegged exchange rates, d) save a lot, and e) invest efficiently in their means of production, in real assets like gold and apartments, and in bonds of the reserve countries.

3) In the third stage countries are rich and think of themselves as rich.


At this stage, their per capita incomes approach the highest in the world as their prior investments in infrastructure, capital goods and R&D are paying off by producing productivity gains. At the same time, the prevailing psychology changes from a) putting the emphasis on working and saving to protect oneself from the bad times to b) easing up in order to savor the fruits of life. This change in the prevailing psychology occurs primarily because a new generation of people who did not experience the bad times replaces those who lived through them. Signs of this change in mindset are reflected in statistics that show reduced work hours (e.g., typically there is a reduction in the average workweek from six days to five) and big increases in expenditures on leisure and luxury goods relative to necessities.

4) In the fourth stage countries become poorer and still think of themselves as rich.


This is the leveraging up phase – i.e., debts rise relative to incomes until they can’t any more. The psychological shift behind this leveraging up occurs because the people who lived through the first two stages have died off or become irrelevant and those whose behavior matters most are used to living well and not worrying about the pain of not having enough money. Because the people in these countries earn and spend a lot, they become expensive, and because they are expensive they experience slower real income growth rates. Since they are reluctant to constrain their spending in line with their reduced income growth rate, they lower their savings rates, increase their debts and cut corners. Because their spending continues to be strong, they continue to appear rich, even though their balance sheets deteriorate. The reduced level of efficient investments in infrastructure, capital goods and R&D slow their productivity gains. Their cities and infrastructures become older and less efficient than those in the two earlier stages. Their balance of payments positions deteriorate, reflecting their reduced competitiveness. They increasingly rely on their reputations rather than on their competitiveness to fund their deficits. They typically spend a lot of money on the military at this stage, sometimes very large amounts because of wars, in order to protect their global interests. Often, though not always, at the advanced stages of this phase, countries run “twin deficits” – i.e., both balance of payments and government deficits.

5) In the last stage of the cycle they typically go through deleveraging and relative decline, which they are slow to accept.


After bubbles burst and when deleveragings occur, private debt growth, private sector spending, asset values and net worths decline in a self-reinforcing negative cycle. To compensate, government debt growth, government deficits and central bank “printing” of money typically increase. In this way, their central banks and central governments cut real interest rates and increase nominal GDP growth so that it is comfortably above nominal interest rates in order to ease debt burdens. As a result of these low real interest rates, weak currencies and poor economic conditions, their debt and equity assets are poor performing and increasingly these countries have to compete with less expensive countries that are in the earlier stages of development. Their currencies depreciate and they like it. As an extension of these economic and financial trends, countries in this stage see their power in the world decline.

So the US (and much of the advanced economies of the world) are clearly in Stage 5 (or perhaps delusional still in Stage 4) and now we hope for a 'beautiful deleveragin vs an 'ugly deleveraging'

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Mon, 11/12/2012 - 19:39 | 2974461 TahoeBilly2012
TahoeBilly2012's picture

Ain't been beautiful for me. More like "Aunt Ester"...



Mon, 11/12/2012 - 19:54 | 2974502 falak pema
falak pema's picture

I speed dated a female gorilla and then found her a mate in peking zoo. She said "panda to you too." 

Mon, 11/12/2012 - 19:59 | 2974515 Orly
Orly's picture

Yeah...but how'd you make out, falak?

Tue, 11/13/2012 - 02:21 | 2975309 Boris Alatovkrap
Boris Alatovkrap's picture

Boris confused, why is Russia skip stage 3 and 4? Always feel and is poor!

Tue, 11/13/2012 - 06:36 | 2975474 Orly
Orly's picture

We should ask Tsar Vlad about that one...

Tue, 11/13/2012 - 06:27 | 2975468 falak pema
falak pema's picture

the lady was not my type but she was cute enuff to wish me well! Ain't that swell!


Tue, 11/13/2012 - 06:35 | 2975472 Orly
Orly's picture

The answer we were looking for was, "Very carefully."



Tue, 11/13/2012 - 06:43 | 2975476 falak pema
falak pema's picture

she didn't have "claws" like PAula, and I wasn't embedded enuff to cry out for help! After the deserts.

Have you noticed how fast those MIC generals "speed date" ? 

Glorious profession, four stars n all! 

Gen. John Allen Being Investigated For Emails With Jill Kelley - Business Insider

Tue, 11/13/2012 - 07:07 | 2975484 Orly
Orly's picture

Yes, I saw that.  Very, very suspicious...in a strange way.

It seems cut and pasted to me, like the birth certificate itself; almost like they're trying to get caught.  Or shove it in our faces?

A perfect set-up for a coup d'etat spearheaded by the "disgraced" former hero?  Hmmm.  It makes one wonder.

Tue, 11/13/2012 - 07:11 | 2975488 falak pema
falak pema's picture

well if you can't win the war lie back and enjoy the "hidden" peace! 

Ares and Venus, its always been temptation. Can't change human nature. But a spook community is like the Inquisition, it eats its own sons, for betrayal of dogma. It ain't a humanitarian creed. They play for high stakes.

Who cares, except here its all on public issues of blood n guts criminality, and done so incestuously, like it was part of being a general's feudal rights on subordinates. REminds me of DSK. But these women were gold diggers not innocents. 

Much prefer dating gorilla women, they ain't in the power game! Just into cuddling in unknown places. Peking zoo! 

"Seven days in May", good film on the Thermidorian reaction theme. 

Mon, 11/12/2012 - 19:54 | 2974504 Jay Gould Esq.
Jay Gould Esq.'s picture

Akin to the life cycle of a tapeworm -- and regarding the fiscal health of the host, of equal benefit.


( WB7 -- perhaps the time is nigh to diagram the "life cycle." )

Tue, 11/13/2012 - 02:17 | 2975303 AldousHuxley
AldousHuxley's picture

stage 1: military rule

stage 2: nationalists

stage 3: colonialists

stage 4: socialists

stage 5: anarchy

Tue, 11/13/2012 - 02:38 | 2975329 Middle_Finger_Market
Middle_Finger_Market's picture

Stage 6: Mass murder, military rule. 

Tue, 11/13/2012 - 02:39 | 2975331 Middle_Finger_Market
Middle_Finger_Market's picture


Mon, 11/12/2012 - 20:09 | 2974543 Grinder74
Grinder74's picture


Mon, 11/12/2012 - 19:40 | 2974465 Gamma735
Gamma735's picture

Collapsing bubbles do not have enough surface area to keep all the people aloft. 

Mon, 11/12/2012 - 19:42 | 2974466 NidStyles
NidStyles's picture

This is why the smart people move to a developing country when it's become apparent that the current one is declining and becoming rather distasteful.

Mon, 11/12/2012 - 19:51 | 2974494 booboo
booboo's picture

Like? No really, name a few that I can feel safe with the "loco's".

Mon, 11/12/2012 - 20:01 | 2974518 Orly
Orly's picture

Poland, Romania, Czech Republic...

Mon, 11/12/2012 - 20:16 | 2974522 NidStyles
NidStyles's picture

You're not safe where you are at, it's just a delusion that you believe in to justify not leaving a place that is declining at an ever-increasing rate.


I'm moving to the Philippines, I have never had trouble with anything during my times there, and the people are actually polite. There are places all over the world that are good to live in. The US does not have the monopoly on opportunity.

Mon, 11/12/2012 - 20:52 | 2974616 dark pools of soros
dark pools of soros's picture

the USA can bomb every inch of opportunity in the world in less than 3 minutes

Mon, 11/12/2012 - 22:14 | 2974847 Half_A_Billion_...
Half_A_Billion_Hollow_Points's picture

so can china & russia, smartass

Tue, 11/13/2012 - 02:10 | 2975292 AldousHuxley
AldousHuxley's picture

dogs don't shit where they sleep


US is not going to bomb manhattan or DC

Russia is not going to bomb Moscow

China is not goign to bomb Beijing

Tue, 11/13/2012 - 02:35 | 2975324 Seer
Seer's picture

When things get sour world-wide EVERYWHERE will have locals who will lash out at foreigners.

As someone who has traveled there and is married to a Filipina all I can say is: depends on where you go and whether you have money.

Let's see how long you last in the South. (I'm guessing that you're white.)

And in general (assuming you're not of banker status), if you have money people will appear more friendly.

Although I am well accepted by my wife's family I don't think that I could feel comfortable should things go into the toilet


Mon, 11/12/2012 - 19:51 | 2974495 falak pema
falak pema's picture

don't let the natives eat you as you are fat and white. Distateful is a relative concept.

Mon, 11/12/2012 - 20:07 | 2974532 NidStyles
NidStyles's picture

Not fat or white, but thanks for trying. You can be scared all you wish, just don't let your fears weigh upon me as a person, you might find that I'm less likely to be polite to you in the future.

Tue, 11/13/2012 - 06:37 | 2975467 falak pema
falak pema's picture

don't take it personally its a jibe at this propensity to outsource profit and insource pain. I don't like RICH people in general who run away from their community, but then I can understand it for each individual, especially in trying times. Scared is not the emotion I feel on this issue, its disappointment.

As they say, never shame A Woman even if you care to blame female foibles in general. Just an example. I ain't got anything against women, on the contrary. 

Mon, 11/12/2012 - 19:52 | 2974496 Thecomingcollapse
Thecomingcollapse's picture

Have you seen how many states are petitioning to secede?  Texas already has enough signatures and other states are building quickly!  Not like it will ever happen.... but I think civil unrest is brewing!

Mon, 11/12/2012 - 20:06 | 2974534 NidStyles
NidStyles's picture

Let it happen, I'm not fighting for someone else.

Mon, 11/12/2012 - 20:04 | 2974530 kalasend
kalasend's picture

No, Marc Fabar lives in Thailand because he's a BDSM addict.

Mon, 11/12/2012 - 20:06 | 2974533 NidStyles
NidStyles's picture

Sounds like his problem.

Tue, 11/13/2012 - 00:28 | 2975149 TruthInSunshine
TruthInSunshine's picture

I heard the rumors about Faber being into kink, but at least he hasn't gone McAfee-in-Belize and on a rectally inserted, refined bath salts bender & murder spree, bitchez:

John McAfee Wanted for Murder

Mon, 11/12/2012 - 20:54 | 2974618 Thomas
Thomas's picture

The correct spelling is not Marc Fabar: it is Marc Fubar.

Tue, 11/13/2012 - 03:11 | 2975366 A Nanny Moose
A Nanny Moose's picture

Big Time

Tue, 11/13/2012 - 01:19 | 2975226 Seer
Seer's picture


Those that you may believe are "developing" are going to go in the shitter REAL fast when the US pukes.  And, as someone else noted, good luck trying to hide the fact that you're not a "local."

Mon, 11/12/2012 - 19:43 | 2974473 A Lunatic
A Lunatic's picture

Stage 6: SHTF

Mon, 11/12/2012 - 23:37 | 2975043 three chord sloth
three chord sloth's picture

Shit Hits Your Face is more likely, as the fan's been reposessed.

Mon, 11/12/2012 - 19:47 | 2974481 Zgangsta
Zgangsta's picture

So...as long as everyone can believe/make-believe that we are still in Stage 4, everything will be fine?

Tue, 11/13/2012 - 00:35 | 2975156 TeddyBear
TeddyBear's picture


What if I am right?


Stage 5 was 2008. You missed the starting gun, Again. Now in stage 1 or 2.

How many posters here think they are rich....

What stage would that be? Buy Biotech.


Mon, 11/12/2012 - 19:49 | 2974486 Pancho Villa
Pancho Villa's picture

If you look at Japan's population pyramid for 2010 and 2015:



you see that a whole lot of Japanese are going to celebrate their 65th birthday in the current half-decade. They will retire and change from purchasers to sellers of JGB's. It will be interesting to see what happens.

The Japanese baby boom peaked about 10 years earlier than the US boom. So the US in 2025 might look a lot like Japan in 2015.

Mon, 11/12/2012 - 20:20 | 2974561 SafelyGraze
SafelyGraze's picture

time to coin new euphemisms for deathPanels and senicide

populationPyramid re-balancing

popPyr sculpting

popPyr pruning

popPyr right-sizing

Tue, 11/13/2012 - 03:50 | 2975396 AmCockerSpaniel
AmCockerSpaniel's picture

Well guy's, we though we were fuc&ing the woman, but now that there is not enough replacements to support us, it really was them fuc&ing us. We are just slow learners.

Mon, 11/12/2012 - 19:50 | 2974489 falak pema
falak pema's picture

sounds like the life cycle of a dynasty; rags to riches to rags. 

Mon, 11/12/2012 - 19:53 | 2974499 LawsofPhysics
LawsofPhysics's picture

The earth is awash in fiat. Sorry, no getting away from that.

Mon, 11/12/2012 - 19:54 | 2974505 Tinky
Tinky's picture

While it won't be news to most ZH readers, this is actually a good, succinct summary.

Mon, 11/12/2012 - 20:19 | 2974508 francis_sawyer
francis_sawyer's picture

5 stages


1. Hardy 'working types' emigrate to pristine land

2. They build infrastructure, & manufacture goods from the fruit of the land

3. They band together to create mutually beneficial co-ops

4. Jews arrive to profit from the newly created commerce

5. All hell breaks loose

Mon, 11/12/2012 - 23:43 | 2975069 SanOvaBeach
SanOvaBeach's picture

You're a racist prick...................

Tue, 11/13/2012 - 00:16 | 2975132 samwell
samwell's picture

the truth hurts doesn't it asshole!!

remind me again asshole how jews are a race.  i guess there are blond haired, blue eyed jews and dark eyed black hair jews huh?  is that right.  huh?  jews and their familiars will always defend themselves with the racist, anti-semite rant/trick.  most jews are jews by religion only as they are decendants of Khazar barbarians (ashkenazi) which have absolutely no racial heritage with biblical jews or modern day semites known as Palestinians.  Get your facts straight douche bag before you come out with your familiar attack canard of "racist" anti-semite.  I for one, won't fall for it.  I guess I am a racist/anti-semite for point this out though, right douche bag.  please call me one so I can confirm your brainwashed, ignorant, feeble mind.





Tue, 11/13/2012 - 00:20 | 2975135 samwell
samwell's picture

exactly right my friend!  the jew parasites move in to suck the blood out of the host as they always have.  jews have been kicked out of every european country over the past 2000 yrs, sometimes multiple times.  The problem isn't the native population, it is the jews and their greed/theivery/usury.Oh, but its always the goys fault.  google  the Holdomor to see what I mean.  ethnic christians starved to death by Bolshevik jews

Tue, 11/13/2012 - 01:20 | 2975231 Seer
Seer's picture

You missed the part where the resources get consumed up, which tends to make those fruits rot...

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