20 Jun

A Ray Dalio Perspective on the Iran War

Consistent with two of TLR’s themes over the past 7 years, beginning with April 2019’s “Red Storm Rising” and June 2019’s “What is Money” and including the recent “What ‘America First’ Means to Allies and Enemies” and “Will the Dollar Surrender its Reserve Currency Crown?,” Ray Dalio this week provided a China-centric perspective (“The Tribute System: The New World Order”) on the accelerating “fall” of the American Empire (“[The Strait of Hormuz] situation looks a lot like the British handling of Egypt’s taking of the Suez Canal, which signaled the end of the British Empire.”) and of the US Dollar as the world’s reserve currency (“[T]he use of the renminbi for trade and capital transactions is growing quickly relative to the US dollar, and China’s banks, capital market companies, and capital markets themselves are becoming strong competitors to their American counterparts at a time when the Chinese are understandably reluctant to accumulate American assets that can be sanctioned.”). His conclusion is that America’s actions in the Iran War have led China to adopt “a modern-day version of the tribute system”: “I believe we should expect that the Chinese culture and President Xi’s leadership — together with China’s increased economic, military, and geopolitical powers and political realities in both the US and China — will lead to … China becoming strong and largely self-sufficient through its increasingly exercising its sovereign authority over Taiwan (where most of the world’s AI chips are produced) and asserting itself over opposing countries [especially Taiwan, Japan and the Philippines] using techniques of pressure and deception … without initiating head-on military attacks, and through the emergence of a modern-day version of the tribute system, with significant progress toward all this coming [more quickly than most have been expecting].” These are two of the more apparent collateral consequences of the Iran War.