The System Series: Tariffs (Part I)

The Unbalanced System & The Tariff Shock

TOPIC: The Unbalanced System & The Tariff Shock

This will be the first piece in a series (The System Series) that examines the underlying System itself, analyzed from the ground up looking at the foundational inputs: Capital and Labor.

The Pillars of Power help us understand Players and Pieces within the System. But they also help us understand the System components – Capital is Money (stored Energy) and Labor is Energy (more efficiently harnessed using Technology). Each element is interchangeable and interconnected – mostly a labeling question, but we’ll save the Philosophy for now.

We’ve been observing and analyzing the System itself for over a decade – we literally have it embedded within our Website and Mission. And it’s incredibly clear to us that there is an unsustainable imbalance within the current System – many pendulums have simply swung too far. After decades of Order (suppressed Entropy), we are beginning to see Disorder (rising Entropy) – like any Natural System, it is constantly seeking Balance (Equilibrium, Harmony; the labeling goes on). With this series we hope to help you better understand the System itself from First Principles.

Given how seemingly wildly misunderstood Tariffs are – not the Tariff itself, but its Purpose – we are beginning the series here. Simplistically, Tariffs today are being used as an impetus to change the underlying System at its foundation layer – Capital, Labor, and their flows. Part I (below) is to set the stage, while Part II will get into the Tariff goals. And to tie all of this together, we will follow up with deep-dives into Capital and Labor in the coming weeks.

We begin with…

THE SYSTEM

The System as it is structured today is not sustainable. Period. It would collapse under its own weight within the decade.

To provide context, a brief snapshot of the System today:

The US added more Debt in the last 4 years than its first 220 years.

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As interest rates on Debt rise and the total amount of Debt outstanding rises (graph above), the interest payments on that debt rise at an accelerating rate (graph below). This is grade school math. A simple exponential function.

Interest expense is now the largest expenditure by the US Government, exceeding Defense spend. And historically when you’ve seen any great Power spend more on Interest than on Defense, they cease to be a great Power – Ferguson’s Law.

While Debt in and of itself is not a problem, the issue is the diminishing returns of incremental Debt – leading Debt to grow much faster than GDP (graph below).

A root cause of Debt growing faster than GDP is simply the allocation of Capital (i.e., incremental Debt) to unproductive uses (i.e., receiving less than $1 back for $1 invested).

A recent and highly relevant example is giving people Money in proportion to how much ‘excess’ Money they already have. This incredibly regressive policy both ballooned the Debt and exacerbated the already extreme wealth divide in the System (graph below).

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The top 10% now controls over 60% of Assets in the US, while the bottom 50% controls just over 5%. That same top 10% accounts for over 50% of all spending (Consumption) in the US (graph below).

It’s no wonder why everyone is so focused on the Stock Market (a primary Asset) – the top 10% controls most of it, and when it goes down, Consumption goes down. The Economy is increasingly Financialized – Asset market fluctuations drive Economic fluctuations. This rising Reflexivity in a very unbalanced System is dangerous.

And the Markets themselves – which increasingly drive Consumption (deeper-dive on Financialization coming) – are also incredibly concentrated and unbalanced. The top 5 companies (1%) represent almost 25% of the total US Market Capitalization (using the S&P 500); the bottom 495 companies (99%) are closer to 75%.

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Whether you look at People or Businesses, the concentration and imbalances are getting to unsustainable extremes – and they are all fractals of widening divides in Society and the System.

To be clear, we fully believe in meritocracy. We are not saying the above or the System itself is inherently good or bad, it just is. And looking at its current state, it is not sustainable. We are cognizant of how Natural Systems are Balance-seeking – one way or another. So when extremes do occur – like CEOs making 400x the typical worker (graph below) – we pay attention.

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‘Let them eat cake’ has turned into ‘Let them eat flat screens’ for anyone perpetuating the current System. We would much prefer a path of open, constructive Communication (including active Listening) – discussing Foundational Truths and debating the best Paths forward. Rather than another French Revolution style event…

With Labor share of GDP (blue line) near all-time lows, and Capital share of GDP (red line) near all-time highs, no chart better exemplifies the un-Natural and un-Balanced System than the below.

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And as an output of this System, the West has shipped its Production to China (graph below) and become a Consumption economy driven by the Few. The fragility of this arrangement is articulated in the China/Xi and US/Trump pieces. A beautiful rebalancing – China toward Consumption, the US toward Production – is a Natural non-zero-sum outcome that we’ve been pushing for for years… but that requires the System to change.

It’s all interconnected. It’s all one System – and the above are all outputs of it.

Simplistically, the pendulum has swung too far (in the US in particular):

• Consumption vs. Production

• Capital vs. Labor

• Short-Termism vs. Long-Term Building

• Scarcity Mindset vs. Growth Mindset

The list goes on. It’s all rooted in the same thing. Whether you are left, right, up, down or inside-out (we don’t buy into categorical mutually exclusive parties) – it’s pretty obvious the System is unbalanced.

If left unaddressed, this is a National Security concern.

We can choose to address it. Or choose to stay asleep and it will address us.

We will delve into the details of the current unbalanced System and how we got here in the coming Capital and Labor pieces. But the reason we open with this backdrop is to simply highlight that the current System will change no matter what – the question is do we want Control over shaping it (must act now) or not (stay asleep)?

Extremes are fine for a bit – a little hormetic stress like Sauna and/or Cold Plunge is great for the Body, and help build and prove Resilience. But the real magic is in how quickly the Body — like any Natural, free-flowing System – gets back into Balance. The Adaptability.

Nature loves Balance. Any Natural, free System, naturally seeks equilibrium. Given Time and Space, our System is naturally rebalancing. The Fourth Turning is just a complicated way to explain simple Process – Rebalancing.

The Purpose of a System is what it does. And if what the current System does is perpetuate inequality and unsustainable imbalances – some of which threaten the very National Security and livelihood of the Architect – then it’s likely time to re-evaluate it.

The longer you wait, the more painful the path to Equilibrium. Nature will force it one way or another. The System must…

CHANGE

But most people in Power do not want change – they have Control. Why would they ever come to the table to actually address imbalances and/or change a System that serves them?

The majority of them are linear thinkers focused on preserving the current System. Given their age, wealth and Power (all high and rising), they are focused on the short term and don’t spend much time thinking about the Future and/or nonlinear change. This is exemplified by the average age of US Congress (graph below) – as they get older, their time horizons shorten…

And tying into the section above, who holds the vast majority of the aforementioned Wealth? The Old — primarily the Boomers (graphic below) in the top 1%. A subset of them seem to have some incentives to preserve the current System…

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Further, those in Power also control mainstream Media. And mainstream Media controls the Narrative – they use Fear to attempt to remove your Control. They use Complexity to Confuse you, which leads you to Question yourself and ultimately ‘forces’ you to hand Control to an external Authority. Stop viewing the System through the filter of the Media – bring back your own individual critical thinking, and always follow the incentives…

Is it really surprising that the majority of people do not trust the gaslighting mainstream Media?

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Or that the majority of people do not trust the Government?

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It’s because they no longer represent the majority views. The System is no longer serving the majority.

But, in classic Natural System fashion, the Demographics are naturally rebalancing – the old are dying, the young are maturing – which is beginning to enable change. Nature is the perfect Design. As the System hits peak imbalance, Power struggles between generations will increase (well documented throughout historical Fourth Turnings). We are at an inflection point in Power transitions – as highlighted by the graphic below.

The opportunity to rebuild a better System, from First Principles, is emerging.

Maybe, in studying History, we’ve learned from prior similar System extremes – The American Revolution, The Civil War, World War II are all examples with similar backdrops (Fourth Turnings) – and we’re pre-emptively ready to (peacefully) address the imbalances and build a better System foundation.

Either way, what is needed is a catalyst to accelerate System change.

Enter:

TARIFFS

The Purpose of the Tariffs is to accelerate changing the System itself at the Foundation (Labor & Capital). They are a catalyst injected into an imbalanced System that forces it to recalibrate (and likely rebuild). They will undoubtedly be disruptive – but they are an impermanent (in current form) means to a broader end.

Once you are truly aware of the System, you cannot ‘unsee’ it. Doing nothing is a choice not to change the current System. Tariffs take that status quo – don’t wake me up – option off the table. The boats have been burned – the only way forward is through.

In Part II we will delve into the how, what, and why of the Tariffs and connect the dots across the broader Strategic Vision…

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Thanks for reading. If it was useful, share it. If it could be more useful – let me know how (info@aquavisadvisors.com). If you have any questions, comments, or want some resource suggestions to learn more – let me know.

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