The Cycle of Democracy - Economic Standpoint (?)

The Rise and Fall of American Democracy
- Robert Kiyosaki
Posted on Wednesday, October 27, 2010, 12:00AM

Alexander Tytler (1747-1813) was a Scottish-born English lawyer and historian. Reportedly, Tytler was critical of democracies, pointing to the history of democracies such as Athens and its flaws, cycles, and ultimate failures. Although the authenticity of his following quote is often disputed, the words have eerie relevance today:

A democracy is always temporary in nature; it simply cannot exist as a permanent form of government.

A democracy will continue to exist up until the time voters discover they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by dictatorship.

The average age of the world's greatest civilizations from the beginning of history has been about 200 years. During those 200 years, these nations always progressed through the following sequence:
• From bondage to spiritual faith;
• From spiritual faith to great courage;
• From courage to liberty;
• From liberty to abundance;
• From abundance to complacency;
• From complacency to apathy;
• From apathy to dependence;
• From dependence back to bondage.

Tytler's Cycle and the U.S.
In looking at American history, we can see Tytler's sequence in action. In 1620, the Pilgrims sailed to America to escape the religious bondage imposed by the Church of England. Their spiritual faith carried them to the new world.

Because of their deep faith, the Pilgrims left England in spite of the high percentage of deaths incurred by earlier American settlements. For example, when Jamestown, Virginia, was founded in 1607, 70 of the 108 settlers died in the first year. The following winter only 60 of 500 new settlers lived. Between 1619 and 1622, the Virginia Company sent 3,600 more settlers to the colony, and over those three years 3,000 would die.

In 1776, the Declaration of Independence was signed. From spiritual faith the new Americans were garnering great courage. By crafting the Declaration of Independence, the colonists knew they were essentially declaring war on the most powerful country in the world -- England.

With the onset of the Revolutionary War, the colonists were moving from courage to liberty, following Tytler's sequence. By demanding their independence and being willing to fight for it, a new democracy was born. This new democracy grew rapidly for nearly 200 years.

Then, in 1933, the U.S. was thrown into the Great Depression and elected Franklin Delano Roosevelt as president. Facing total economic collapse, Roosevelt took the U.S. dollar off the gold standard. At the same time, Germany, also in financial crisis, elected Adolf Hitler as its leader. World War II soon followed.

In 1944, with WWII coming to an end, the Bretton Woods Agreement was signed by the world powers and the U.S. dollar, once again backed by gold, became the reserve currency of the world.

After the war, America passed England, France, and Germany to become the new world power. Having entered the war late, the U.S. emerged as the creditor nation to the world. Our factories weren't bombed and the world owed us money. The U.S. grew rich financing the rebuilding of England, France, Germany, Italy, and Japan. The American democracy was transitioning from liberty to abundance -- maybe too much abundance.

In 1971 President Nixon violated the Bretton Woods Agreement by taking the U.S. dollar off the gold standard because America was spending more than it was producing and the U.S. gold reserves were being depleted.

In 1972 Nixon visited China to open the door for trade. What followed was the biggest economic boom in history -- a boom fueled by the U.S. borrowing money through the sale of bonds to China, one of the world's poorest countries at that time. The sale of these bonds financed a growing U.S. trade deficit. China produced low-cost goods, and we paid for them with money borrowed from the Chinese workers.

American factory production, which had fueled the American boom after WWII, was "shipped" overseas along with high-paying American jobs. America was shifting from abundance to complacency. Rather than produce, we borrowed and printed money to maintain our standard of living.

In 1976 America celebrated its 200th anniversary as a democracy. Rather than produce, we kept borrowing to finance social-welfare programs. Over the next three decades or so, America slid from complacency to apathy.

In 2007 the subprime crisis reared its ugly head. And by 2010, unemployment increased to double-digits, even as the rich got richer. Once-affluent people walked away from homes they could no longer afford. The U.S. moved from apathy to dependence.

Today we're dependent upon China to finance our debt as well as fill our stores with cheap products. At the same time, millions of Americans are becoming dependent upon the government to take care of them. If Tytler is correct, the American democracy is presently moving from dependence back to bondage.


History reminds us that dictators and despots arise during times of severe economic crisis. Some of the more infamous despots are Hitler, Stalin, Mao, and Napoleon.

I find it interesting that the U.S. is now dependent upon Chairman Mao's creation, the People's Republic of China, for the things that we buy and the money that we borrow.

To me, this is spooky, foreboding, and ominous. While the Chinese people, as a rule, are good people, my business dealings with Communist Chinese officials have left me disturbed and concerned about the rise of the Chinese Empire. As you know, China doesn't plan on becoming a democracy. With money, factories, a billion people to feed, and a massive military, could they put the free world into bondage?

Although I don't like the way the Chinese do business, I continue to do business in China. I have to. They're the next world power. I cautiously believe that trade, business, and understanding offer better options for world peace and prosperity than isolationism.

Now the Western world must seek to grow stronger financially as China continues to gain power. To do this, our schools need to offer more sophisticated financial education to children of all ages.

This is not the time to be complacent or apathetic. This is the time to think globally. Putting up trade barriers would be disastrous. Instead, it's time our schools train students to be entrepreneurs who export to the world rather than employees looking for jobs that are being exported to low-wage countries.

Please be clear. I don't fear the Chinese. I fear our own growing weakness. Only a weak people can be oppressed. Today, America has too many people looking to the government for financial salvation.

In 1620 the Pilgrims fled the spiritual oppression of the Church of England. Today Americans may need to flee the financial oppression of our own government as our democracy dies. If we follow Tytler's cycle for democracy, our financial dependence will lead us to financial bondage.


Robert Kiyosaki is a world-renowned property investor and the author of best-seller Rich Dad, Poor Dad series of books.
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I read some of Kiyosaki's books from the "Rich Dad Poor Dad" series.
He had also wrirtten largely on the current 'pathetic' economic condition in the US.
He attributed this mainly to the the US Dollar (USD) being taken off the gold standards (in violation to the Bretton Woods Agreement after WW2).

This allowed the US government to print as much paper currencies as they need to sustain the economy as the Administration sees fit.

Coupled with all the recent unscrupulous businesses going on (sub-prime crisis etc.) that resulted in huge government bailouts (read : taxpayers money) of giant Corporations .... I postulate that Robert is very very concerned that the US economy is sitting on a timebomb waiting to explode anytime without warning.

His article above (posted on Yahoo! Finance), in my opinion, attempts to 'predict' the future of US economy & the direction it is heading. I surmised that the US has come full circle & about to go right back to the top of the Tytler's cycle above.

However, back in the 17th century, the bondage was to England and the difference this round would be, China replaces England.

So, coming back to the local scene.
Which stage are we right now (in accordance to Tytler's cycle) ?
I'm no economist nor a fortune teller but in my humble opinion, we're at the "From complacency to apathy" stage.

In all likelihood, we may be going down the same path as the US right now.
Therefore, we need to be careful & learnt from past lessons.

In Robert's own words ..... "This is not the time to be complacent or apathetic. This is the time to think globally .... it's time our schools train students to be entrepreneurs who export to the world rather than employees looking for jobs that are being exported to low-wage countries."

I can personally vouch that our current education system is inadequate in preparing our young ones to have the entrepreneurs mindset and also the instilling of the proper attitude.

Having said that, I really hope that the authorities has the vision & the courage to revamp our education system & curriculum for the benefits of our future generations.

After all, it's not only the US but almost the whole world would have to face & deal with the next superpower.


* The author is now trying to catch up on the progress of Guangzhou Asiad 2010 *

What Goes Up Must Come Down

Table 1 : Newtonian Physics w.r.t the stock market

Date : Mar 14th, 2009

Of course, the reverse should be true also ….. What Comes Down Must Also Go Up !

On planet Earth, where Law of Physics governs how the natural world works ….. from electro-magnetic field due to Earth’s rotation, gravity, motions, electronics …. you name it, the Law of Physics has a part in it.

Now, let’s take a look at one of the most famous Laws in Physics ……..the Newton’s Law of Motion.

A simple definition as follows :

Newton's laws of motion are three physical laws that form the basis for classical mechanics, directly relating the forces acting on a body to the motion of the body. They were first compiled by Sir Isaac Newton in his work Philosophiae Naturalis Principia Mathematica, first published on July 5, 1687. Newton used them to explain and investigate the motion of many physical objects and systems.For example, in the third volume of the text, Newton showed that these laws of motion, combined with his law of universal gravitation, explained Kepler's laws of planetary motion.

1) First law
There exists a set of inertial reference frames relative to which all particles with no net force acting on them will move without change in their velocity. This law is often simplified as "A body persists its state of rest or of uniform motion unless acted upon by an external unbalanced force." Newton's first law is often referred to as the law of inertia. So in other words "every object in motion will stay in motion until acted upon by an outside force."

2) Second law
Observed from an inertial reference frame, the net force on a particle of constant mass is proportional to the time rate of change of its linear momentum: F = d(mv)/dt. This law is often stated as, "Force equals mass times acceleration (F = ma)": the net force on an object is equal to the mass of the object multiplied by its acceleration.

3) Third law
Whenever a particle A exerts a force on another particle B, B simultaneously exerts a force on A with the same magnitude in the opposite direction. The strong form of the law further postulates that these two forces act along the same line. This law is often simplified into the sentence, "To every action there is an equal and opposite reaction." Or in other words, "for every action there is an equal and opposite reaction."

Let’s see if this also applies to our stock market, the barometer of the state of economies of the country …. at least the perceived barometer for most people.

I tried applying these 3 Laws into the Dow Jones Industrial Average (DJIA) trend as illustrated in Table 1 above.

1st Law in Action :

From mid-2007 to mid-2008, with no external net force to jerk the market, the DJIA averages 13,000 pts :

... every object (the DJIA indice) in motion will stay in motion until acted upon by an outside force."

2nd Law in Action :

An external net force jerk the market in the form of the sub-prime mortgage crunch.

As we moved towards 4Q'08, more and more external net force sets in, one after another in a "tsunami-like" wave.

Giant US Corporations fells like dominoes ... Lehmans, AIG, Citigroup, Washington Mutual (WaMu), Fannie Mae, Freddie Mac .... the lists goes on (increasing the mass, 'm')

As the tsunami gathers momentum, 'a' .... the Force, F increases exponentially.

Unfortunately, the 'F' in this case is a "negative" force that represents broad panic selling.

By 1Q'09, the Dow lost 50% of its market capitalization.

3rd Law in Action :

Now, the stock market is a trading place. For trading to happen, there must be sellers & buyers, and prices are determined via the the Demand & Supply rules.

Hence, the 3rd Law : for every action (Selling) there is an equal and opposite reaction (Buying)" ... however much the sellers want to sell, there will be buyers taking them up.

There you have it .....the stock market also behaves like any other natural forces of the Earth. It conforms to the Law of Physics. Now, the trillion $ question is ..... who are these people/institutions that are buying up in the current extreme bearish sentiments ? ...and why are they doing it ?

A hidden lesson to be learnt here ?

Remember ... What Comes Down Must Also Go Up ! .... if you truly believe in the 3 Laws of Motion.

I was joking with a colleague the other day. He is a Planning guy and naturally, he's concerned with production outputs. Recalling this, I laughed when he coined the term "What Goes In Must Come Out".

Financial Tsunami Part 2 ... & Football

Oct 11th, 2008 :

I have been 'delayed' posting this article.
Below is what I wrote back in Sep :

************************
Since the financial crisis outbreak in Sep'08, (some analyst has dubbed it Black September - in analogy to the US Market Crash one Black Monday in October of 1987), so much has happened.

Below is the summary of the chronological events that led to the meltdown :

March 16: - Struggling Wall Street investment bank Bear Stearns is sold at the fire-sale price of 236 million dollars to JP Morgan Chase, in a deal engineered by the Federal Reserve.

September 7: - The US Treasury takes over shareholder-owned mortgage finance giants Freddie Mac and Fannie Mae and guarantees 100 billion dollars of debt for each institution.

September 15: - Venerable Wall Street investment bank Lehman Brothers files for bankruptcy protection after the US government refuses to bail it out. - Rival Merrill Lynch hastily arranges to be swallowed up by Bank of America for 50 billion dollars. - Credit rating agencies downgrade the debt of American International Group (AIG), the largest US insurance company, and its share price plunges 60.8 percent, deepening earlier losses. - The Federal Reserve pumps 70 billion dollars into the markets. - The Dow Jones Industrial Average plunges 504 points, or 4.42 percent, its biggest one-day loss since September 2001. London's FTSE 100 index dropped 3.92 percent, the CAC 40 in Paris fell 3.78 percent and Frankfurt's DAX sheds 2.74 percent.

September 16: - The US government rescues AIG with an 85-billion-dollar loan, giving the US government a 79.9 percent stake in the company. The Fed injects another 50 billion dollars into the markets.

September 17: - Stocks plunge again amid the economic uncertainty: the Dow slides 449 points or 4.06 percent. The Securities and Exchange Commission (SEC) bans some short selling of financial shares.

September 18: - The Fed and global central banks pump 300 billion dollars into credit markets. Stocks rally on news of a broader US government bailout; the Dow jumps 3.86 percent. - US Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke begin talks on a huge plan to buy toxic mortgage-related assets from troubled financial institutions. Reports of the discussions send the Dow Jones average up 410 points.

September 19: - US government asks Congress for the ability to buy 700 billion dollars in bad mortgage-related debts, one of the biggest financial rescue plans in history. The Fed pumps another 20 billion dollars into the credit markets. Stocks soar, with the Dow up 3.35 percent and Paris and London indexes surging 9.27 percent and 8.84 percent, respectively.

September 21: - The Federal Reserve announces that Goldman Sachs and Morgan Stanley, the last big independent investment houses on Wall Street, were turning themselves into bank holding companies subject to greater regulation.

September 24: - Republican Senator John McCain announces that he was suspending his presidential campaign to join tough negotiations in Congress over the government's bailout plan. His Democratic rival, Senator Barack Obama, declines to follow suit. - President George W. Bush gives a nationally televised speech warning that the "entire economy is in danger" if Congress does not approve the bailout. He invites McCain and Obama to a White House summit on the crisis.

September 25: - Lawmakers announce "fundamental agreement on a set of principles" for a rescue plan, but talks then deadlock due to opposition from conservative Republicans. The White House meeting ends inconclusively.

September 26: - Washington Mutual (WAMU) collapses in the biggest US bank failure to date. JPMorgan Chase purchases parts of WAMU for 1.9 billion dollars.

September 28: - Lawmakers hail breakthrough in talks, releasing draft legislation for a phased bailout beginning with purchases of 250 billion dollars in toxic debt with the possibility of expanding to 700 billion dollars. Deal would impose curbs on executive pay and introduce strict oversight over the plan.

September 29: - The House of Representatives rejects the bailout plan by a vote of 228 to 205, with Republicans leading opposition to the deal.

At the time of this writing, the US Senate has approved a revised bailout plan & now pending the approval at the Lower House, of which the Senate is quite confident of it being bought-off.

Over the past 1 month, DJIA has dropped from almost 12,000 pts to currently 10,700+ pts. All other major bourses in Europe & Asia experienced similar downtrend. Billions of dollars were "lost" ...or at least paper-loss over this crisis.

Critics of the US financial bailout are skeptical .... US$ 700B is a huge amount .... where & how on earth, can the US government raise this fund ?! ... knowing fully well, that they have been on trade & budget deficits for more than a decade.

Time to 'panic' ?? ...... depends on which school of thought you belongs to .... most folks will have the fear factor taking charge by now.

Others will see that an opportunity is presenting itself ... The Chinese has a word for this kind of situation ... 危机 ... the first character means "danger/crisis" while the 2nd means "opportunity". Put them together, it loosely means that there's always opportunities behind every crisis.

***************************

However, Oct'08 proves to be the Achilles heel of the the US & WW economies. The meltdown accelerated & DJIA as of 10/10, closed at 8,451 .... down from abv 10,000 end of Sep.

Likewise for major bourses across Europe/Asia .... FTSE100, DAX 30, CAC 40, Nikkei, Hang Seng, KOSPI ... tumbled 18% (on avg) in the first 2 weeks of Oct.

So much for a Perfect 10 (Oct 10th) ... Ironically, our very own KLSE proves resilient with a drop of only approx. 7% over the same period. Perhaps we have some divine intervention as 10/10 happens to be the 1st anniversary of Malaysia's Astronaut Day.

Man ... I hate it ... the prophecy of a Financial Tsunami (from my earlier article) seems to be marching towards reality. The Million Dollar Question now is .... how much further would be the avalanche ?? ... and what's the worst impact towards the well-being of the man-in-the-street ?

While there is some consolation in that the crude oil prices has reduced to below $90/barrel, this effect does not ripple through to the local commodities. Prices remains "sticky".

On a macro-view, my take is ... there'll be another round of large scale downsizing and a couple of Mergers & Acquisitions (M&As) taking place this Qtr. Singapore is now officially in recession. By Nov, the recession "bug" would spread to the rest of SEA economies & by Dec, the Greater China region would succumb to it. In a nutshell, the whole world may be in recession by Christmas.

And ... what has this gotta do with football ? ... remember the AIG scandal ... they happened to be the main sponsor of ManUtd FC. I predict that they will withdraw the sponsorship soon. Chelsea may see a dearth of $$$ coming thru' as Roman Abramovich's fortune has also dwindled by trillions over the past 2 months.

Hmmm .... wonder if C.Ronaldo or Rooney can still get their GBP150,000/week ;-)