Money in 20 year Cycles | Where we are in 2025 and how to flip the script
Tracking the pattern correctly.
The dollar–China trap is not an exception. It is the latest chapter in the same leveraged story that gave you 1929, 1971, 1997, 2008, and now the derivatives monster sitting on top of everything.
How this links to 2008 and “The Big Short”
At the core, both the China–dollar trap and the 2008 crisis share three features:
• Artificial stability
• Hidden leverage
• Claims that sit on top of a much smaller real base
2008 in simple terms
• Banks pooled home loans into mortgage-backed securities.
• Then they sliced those into CDOs and synthetic CDOs, which were “bets on bets” on the same underlying mortgages.
• Rating agencies stamped large parts of this structure as “AAA”.
• Investors used leverage and margin to load up on these products, thinking housing “never falls everywhere at once”.
• When US house prices fell and subprime borrowers defaulted, the whole synthetic stack started to collapse.
The Big Short shows this clearly. The notional size of the bets was several times the size of the actual mortgage market. That is “gambling on things that do not exist in reality”. The contract claims were huge. The real houses and incomes behind them were small.
Now zoom out to derivatives today
• Global OTC derivatives notional is around 700 trillion dollars. Exchange traded derivatives add tens of trillions more.
• World GDP is around 110 trillion. Global debt is over 300 trillion.
• The industry will say “notional is not real risk”. True. But it shows how many layers of claims sit on top of the real economy.
This is 2008 scaled up. Instead of one housing bubble, the system is full of leveraged interest rate, FX, equity, credit and commodity bets. All netted and collateralised, until correlations break.
Where the China–dollar trap fits
• China holds over 3.2 trillion dollars in reserves, mostly in dollar assets.
• The US depends on foreign buyers, including China, to fund huge deficits. US public debt is above 30 trillion and still rising fast.
• The “win-win” trade of 1980–2020 created a tight loop. China exports goods, earns dollars, buys US bonds. The US imports goods, runs deficits, and keeps the dollar system at the centre of global finance.
This loop sits on top of the same derivative and leverage structure that blew up in 2008, only bigger and more global. When rates rise, when trust falls, the pressure hits both sides of the rope at once.
The 20-year rhythm of crisis and regime change
The dates are not perfect 20-year beats, but you can see a repeating cycle.
Step 1. New money rules.
Step 2. Credit expansion and leverage.
Step 3. Crash or near-crash.
Step 4. Rescue with even looser money and more central control.
Repeat.
Here is a simple map.
1913–1934: Fed and the Great Depression
• 1913. The Federal Reserve is created to be lender of last resort and smooth banking panics.
• 1920s. Easy credit and margin loans. You could buy stocks with only a small down payment, often 10 percent. Leverage did the rest.
• 1929. Stock market crash.
• 1930s. Great Depression. Bank failures, deflation, mass unemployment. US responds with tighter financial regulation, the FDIC, and more centralised control of banking and markets.
Pattern: leverage on top of a real economy, weak rules, then a crash and centralisation.
1944–1971: Bretton Woods and the gold-dollar order
• 1944. Bretton Woods. The dollar is fixed to gold at 35 dollars per ounce. Other major currencies are pegged to the dollar.
• The US promises other central banks they can redeem dollars for gold. This anchors the system.
• By the late 1960s, the US has spent heavily on Vietnam and domestic programs. Dollars in the world pile up faster than US gold reserves.
1971: Nixon shock
• August 1971. Nixon closes the “gold window”. Foreign central banks can no longer swap dollars for gold. The dollar becomes a pure fiat currency.
• By 1973, major currencies float against each other. The old promise is gone. Trust replaces metal.
• Over the next decade the “petrodollar” structure forms. Oil is priced in dollars. Energy demand supports dollar demand.
Pattern: system under strain, claims on gold larger than the gold, convertibility ends. A new regime, more flexible, more inflation risk.
1980s–1990s: Deregulation, bubbles, Asia
• 1980s. Many countries liberalise finance. More cross-border capital flows, more debt, more complex products.
• Late 1980s and early 1990s. Japan’s stock and property bubble peaks and collapses. Long stagnation follows.
• 1997–1998. Asian financial crisis. Fixed exchange rates, foreign currency debt, and hot money inflows lead to a brutal bust.
• 1998. Long-Term Capital Management (LTCM), a highly leveraged hedge fund using complex derivatives, nearly collapses the global system. The Fed organises a private rescue.
Pattern: liberalisation, foreign capital surges, leverage, currency pegs, then a chain reaction. Again, the answer is more central bank support and more global coordination.
2000–2008: Housing bubble and structured finance
• Early 2000s. After the dot-com crash, rates stay low. Credit expands. Housing becomes the new collateral engine.
• Banks engineer mortgage-backed securities, CDOs, synthetic CDOs, and credit default swaps. The notional size of these markets grows far beyond the actual mortgage pool.
• Leverage piles up across banks, brokers, and shadow banks.
2008: Global Financial Crisis
• US subprime borrowers start to default. Housing prices fall nationally.
• Because the same loans back many layers of derivatives, losses spread everywhere at once.
• Major institutions fail or need rescue. Central banks cut rates to zero and deploy massive liquidity programs and guarantees. Years later, banks are still paying settlements for mis-selling mortgage products.
Pattern: new instruments, huge leverage on top of a “safe” asset, belief that risk is diversified, then a systemic shock that proves everything is tightly coupled.
2010–2025: QE, China–dollar loop, and the derivatives super-stack
• Post-2008. Central banks keep rates low and expand their balance sheets through quantitative easing. Trillions of new reserves enter the system.
• Global debt rises to over 300 trillion by mid-2020s. Debt grows faster than GDP.
• Derivatives notional outstanding climbs above 600 trillion and moves toward 700 trillion, with interest rate contracts as the bulk.
• China builds and maintains foreign exchange reserves above 3.2 trillion dollars and increases gold holdings to diversify away from the dollar.
• The US runs large fiscal deficits and benefits from continued dollar reserve demand. The rest of the world uses dollar funding and FX swaps at record daily volumes.
Now the trap:
• The US needs the world, including China, to keep holding and rolling dollar assets.
• China needs the dollar system to stay liquid long enough to shift reserves and build domestic demand.
• Both sit on top of a global derivatives stack that is much larger than world GDP.
If something breaks, it will not be a local housing market this time. It will be rates, currencies, or sovereign debt inside a tightly wired system.
The simple pattern through history
Strip away the jargon and the pattern is simple.
- A new promise
Gold standard.
Bretton Woods.
Fiat plus petrodollar.
“Too big to fail” and QE. - Expansion
Credit grows faster than real output.
New instruments “manage risk” while hiding leverage.
People believe the new system is safer than the old one. - Overreach
Margin in the 1920s.
Foreign currency borrowing and pegs in the 1990s.
Synthetic CDOs in 2008.
Global rates and FX derivatives and record debt today. - Shock
1929 crash.
Asian crisis and LTCM.
2008 GFC.
Covid, inflation spike, and the current US–China currency trap. - Rescue by moving the boundary
Close the gold window.
Float currencies.
Cut rates to zero.
QE.
Swap lines.
New rules that still keep the same core game.
Each step solves the last crisis by adding more flexibility and more central power, but rarely by shrinking leverage relative to real output.
So when you look at 2008, the China–dollar trap, and the 600 to 700 trillion of derivatives on top of 300 plus trillion of global debt and about 110 trillion of GDP, you are not looking at separate stories.
You are looking at one long arc:
Claims growing faster than the real world.
Trust and narrative holding it together.
Periodic breaks that force a bigger promise each time.
“Money as Energy” is trying to flip that script.
Move from claims on claims to real value, real output, and real reciprocity. The history you asked for shows why that work is not optional. It is where the story has to go if we want the next regime to be more life-giving than the last one.