The Final Stage of Empire Decline: Historical Cycles, Large Debt Cycles, and the Current Global Landscape

Writing by: Zhou Ziheng

Introduction: The Necessity of Cycles and the Current Turning Point

Historically, every major empire and reserve currency system has gone through a complete cycle of rise, prosperity, decline, and reset. This pattern is not accidental but driven by structural forces, including excessive debt accumulation, currency devaluation, internal conflicts, and the rise of external competitors. Ray Dalio refers to this as the “Big Cycle,” emphasizing the transition from rule-based order to a state resembling “law of the jungle” chaos. Currently, the world is in the late stage of this cycle, characterized by surging U.S. national debt, a declining share of the dollar as the global reserve currency, and emerging powers building alternative systems through hard assets like gold.

According to U.S. Treasury data, by March 2026, total U.S. debt will have exceeded $39 trillion, an increase of about $2.64 trillion over the previous year, with daily growth surpassing $7.2 billion. The debt-to-GDP ratio continues to rise, with public debt exceeding $31 trillion, projected to reach 120% of GDP by 2036. This debt level far exceeds historical records, approaching post-WWII peaks, yet it occurs during peacetime economic expansion, highlighting structural imbalances.

The dollar’s share in global foreign exchange reserves has fallen to its lowest level since 1994, at approximately 56.8% in Q4 2025. Although the dollar still dominates international trade and transactions (accounting for 89% of forex trading), its hegemonic position is facing systemic erosion. BRICS countries (Brazil, Russia, India, China, South Africa, and expanded members) are actively promoting de-dollarization by increasing local currency settlements and gold reserves. These changes are not isolated but reflect contemporary manifestations of the recurring decline of empires. The complex modern system masks underlying patterns but cannot alter their intrinsic logic.

Historical Patterns: Similar Trajectories of the Netherlands, Britain, and the United States

The decline of empires follows recognizable patterns. The Dutch Empire of the 16th-17th centuries rose through commercial and financial innovation, with the Dutch guilder becoming an early global reserve currency. The Dutch accumulated wealth via trade networks and naval dominance but sustained war expenses and debt led to currency devaluation and internal tensions, ultimately overtaken by Britain. In the 18th-19th centuries, Britain inherited hegemony, with the pound dominating global trade until World War I and II, when massive debts and decolonization caused decline. After WWII, the U.S. established a dollar-centered order through the Bretton Woods system, with the gold-backed dollar anchoring the global monetary system.

Commonalities among these cases include: initial success fueling debt expansion. When growth is strong, borrowing accelerates, and increased money supply creates a short-term illusion of prosperity. Murray Rothbard described inflation as a “delusion of prosperity” for victims—short-term income and asset price rises, but with declining real purchasing power, leading to underlying instability. Both the Dutch and British entered decline phases after debt became unsustainable, monetary credibility eroded, competitors built alternative systems, and internal conflicts intensified. Wars often act as catalysts or terminators of these cycles.

Since WWII, the U.S. has played a similar role. The 1944 Bretton Woods Conference established a dollar-gold peg, with the U.S. holding most of the world’s gold reserves and leading trade and financial rules. Initially, this system promoted stability and growth globally. But success sowed the seeds of decline: ongoing growth depended on injecting more currency units rather than creating real wealth. Money printing does not generate new wealth but redistributes existing value through dilution.

Cycle Starting Point: War and System Construction

Each cycle begins with a post-war restructuring. A new dominant power establishes control over monetary, trade, and global rules. When no one challenges its hegemony, the system functions smoothly. After WWII, the U.S. was in this position: military and economic advantages, plus gold reserves, enabled it to build the post-war order. Initiatives like the Marshall Plan cemented this status, making the dollar the preferred medium for international settlement and reserves.

However, the success of the system leads to accelerated borrowing. Growth relies on monetary expansion, creating a self-reinforcing cycle of “growth supported by more money.” Externally, it appears as prosperity; internally, it reveals cracks. The structure cannot sustain excessive debt indefinitely. When growth slows, economic pressures mount, and policymakers often respond by further increasing money supply. This marks the transition from prosperity to a turning point.

Illusions of Prosperity and the Redistribution Effects of Inflation

Money printing creates illusions of prosperity. Living costs rise—food, housing, and essentials become more expensive—while income growth often lags. Housing affordability declines, and middle- and lower-income groups feel the squeeze. Although nominal incomes increase, real wealth is eroded. This effect is uneven: elites close to the money creation source benefit first, profiting from rising asset prices and financial channels; those farther from the source—fixed-income earners and ordinary people—bear the brunt.

U.S. wealth inequality has reached multi-decade highs. By 2025, the top 1% holds nearly 32% of net wealth, while the bottom 50% accounts for only 2.5%. The Gini coefficient remains high, reflecting a K-shaped recovery: asset owners benefit from stock and real estate booms, while wage-dependent groups face stagnation and inflationary pressures. Over the past six years, this gap has widened rapidly, deepening social and political divisions. Internal conflicts provide opportunities for external competitors, weakening the cohesion of the dominant power.

History repeatedly shows that monetary expansion cannot sustain prosperity long-term. Eventually, economic slowdown forces more money printing, creating a vicious cycle: rising debt, inflation, declining real living standards, and political extremism.

Internal Conflicts and External Challenges

When monetary and credit expansion spiral out of control, pressure manifests not only financially but also politically and socially. National divisions deepen, resource disputes intensify. Meanwhile, external competitors are preparing alternative systems. Historically, every hegemon at its peak moves toward decline. Competitors build parallel systems, challenging the existing order.

Today, the U.S. faces similar dynamics. The weaponization of the dollar—freezing reserves, cutting off trade—has sparked global discontent. Many countries seek to reduce reliance on a single currency system. The share of dollar reserves has fallen significantly over the past 25 years, with BRICS countries promoting local currency trade and alternative payment structures. In bilateral trade between China and Russia, over 99% is settled in rubles and yuan. China and countries like Brazil have reached similar agreements, with local currency settlements accounting for about one-third of global trade.

These measures erode the dollar’s dominance but are not overnight phenomena. De-dollarization is a gradual process driven by geopolitical tensions. Since 2022, Russia has accelerated diversification into gold and non-dollar assets amid sanctions, with gold reserves appreciating enough to offset some frozen assets. BRICS+ countries now hold 17.4% of global gold reserves, up from 11.2% in 2019.

De-dollarization and BRICS’ Alternative Efforts

De-dollarization manifests in multiple dimensions. First, reserve diversification: the dollar’s share has fallen to 56.8%, its lowest in 31 years. Second, trade settlement shifts: increased use of local currencies within BRICS reduces reliance on the dollar intermediary. Third, payment infrastructure development: systems to replace SWIFT are gradually emerging.

Gold plays a key role in this process. BRICS countries control about 50% of global gold production and lead central bank gold purchases. Between 2020 and 2024, BRICS central banks bought over half of global central bank gold. Since October 2024, China’s PBOC has continuously increased gold holdings for 18 months, reaching approximately 2,313 tons by March 2026 (some estimates higher), about 9% of its foreign exchange reserves. Russia’s reserves stand at 2,336 tons, India at 880 tons. These three countries hold the vast majority of BRICS gold reserves.

Even if gold prices decline in March 2026 (LBMA gold prices down about 12%, one of the worst monthly performances since 2008), China continues to buy, viewing gold as a long-term strategic asset rather than a short-term trading tool. BRICS’ accumulation of gold aims to build a hard asset buffer in preparation for potential monetary resets. Historical experience shows that after currency failures, entities holding real-value stores like gold preserve wealth, while paper currency holders suffer significant losses.

Ray Dalio recently pointed out that today’s world resembles pre-1945 rather than the postwar period, with debt crises, political disorder, and new world order features emerging. He emphasizes that no government, economic system, currency, or empire can last forever, yet few are prepared for this reality.

Current Assessment: Debt Restructuring and Systemic Pressure

Many analyses place the U.S. in the fifth stage of the big cycle: debt and political restructuring. The scale of national debt, persistent deficits (with the FY2026 deficit already reaching trillions), political polarization, and external challenges are occurring simultaneously. Protecting the dollar requires more spending and borrowing, creating self-reinforcing pressure.

This stage is not tied to specific dates but reflects ongoing patterns. After slow accumulation, changes may suddenly accelerate. Historically, the Netherlands and Britain faced currency pressures, war risks, and order reconfigurations at similar stages. U.S. debt sustainability is questioned: interest payments are nearing or exceeding $1 trillion annually, squeezing other budgets. CBO projections show debt paths are unsustainable without major fiscal reforms.

Internally, wealth redistribution worsens social tensions. Externally, geopolitical events like Middle East tensions (e.g., risks in the Strait of Hormuz) not only impact oil prices but also highlight vulnerabilities in global supply chains and the monetary system. War costs further increase debt, accelerating the cycle.

Reset Mechanisms After Currency Collapse

When empires and monetary systems collapse, which assets prevail in the reset? The historical answer is clear: fiat money has no intrinsic value; its worth can be arbitrarily changed by governments. After revaluation or reset, holders of failed currencies lose most of their wealth. Real money—used as a store of value—provides protection. Gold has historically played a central role in these resets, anchoring new monetary systems.

Competitors like China are positioning themselves through large-scale gold purchases. China is indifferent to short-term gold price fluctuations, focusing on long-term strategic positioning: when the current system devalues significantly, gold will become highly demanded. The price correction in March 2026 did not deter purchases, underscoring strategic rather than speculative motives.

Other assets perform variably in resets, but gold’s durability makes it stand out. Currency resets often coincide with the establishment of new orders, and those holding hard assets can survive cycles.

Risk Assessment and Potential Scenarios

The current cycle faces multiple risks: high debt levels limit policy options, inflation and growth are in conflict, geopolitical tensions could trigger supply chain disruptions or energy price spikes. Political polarization hampers decision-making, external competition accelerates de-dollarization. Even if the dollar remains dominant short-term, its long-term share is clearly declining.

Scenario 1: Gradual Adjustment. Through fiscal discipline and structural reforms, the U.S. might delay decline, but history shows that once debt surpasses critical thresholds, reversal is extremely difficult. Scenario 2: Accelerated Crisis. External shocks (e.g., large conflicts or loss of confidence) could cause rapid dollar devaluation, forcing swift resets. Scenario 3: Emergence of a Multipolar Order. The dollar coexists with other currencies/assets, but its dominance diminishes.

Regardless of the path, the pattern indicates that the sixth stage—potential major conflict or systemic overhaul—is approaching. Slow evolution followed by sudden acceleration is typical.

Conclusion: Pattern Recognition and Long-term Positioning

The decline of empires is not deterministic but a process recognizable through historical patterns. Complexity masks these patterns but cannot eliminate their influence. The U.S. faces challenges similar to those of the Netherlands and Britain: unsustainable debt, credibility issues, internal inequality, and external alternative systems. BRICS’ gold accumulation and de-dollarization efforts further confirm this transition.

Ray Dalio’s insights are noteworthy: almost everyone is surprised and suffers losses when the system fails. Understanding the difference between fiat currency and real-value stores—where the former is manipulable and the latter offers cross-cycle protection—is key. Gold’s role in historical resets is repeatedly validated, and actions by China and others reinforce this signal.

The world is at a critical juncture transitioning from rule-based order to new dynamics. Recognizing patterns allows early risk assessment and diversification strategies to prepare for potential volatility. Historical cycles remind us that prosperity illusions will fade, and those with solid value stores will emerge stronger in resets. This analysis is based on public economic data and historical comparisons, aiming to provide an objective framework rather than specific predictions. Future developments depend on policy choices and global events, but underlying patterns continue to offer valuable insights.