The 4 Stages of Decline: Is the U.S. at Stage 4?

追加: 2026-05-30

[00:00:00]November 6th, 1956, London, the Prime Minister's office at 10 Downing Street.

[00:00:05]Anthony Eden is on the phone with his Chancellor of the Exchequer, Harold Macmillan.

[00:00:11]British paratroopers landed at Port Said two days ago. The Suez Canal, the most strategically important waterway in the British Empire, the artery through which most of Britain's oil supply flows, is being retaken by British forces alongside the French and the Israelis from Egyptian President Gamal Abdel Nasser, who nationalized it three months earlier.

[00:00:34]By any traditional measure of imperial power, this operation is succeeding. The Egyptian Air Force has been destroyed.

[00:00:41]British troops are on the ground. The canal will be back in British hands within days. And Eden is being told by his own Chancellor that they have to stop immediately, today.

[00:00:53]Because the United States Treasury, under direct instruction from President Eisenhower, has begun selling sterling on the open market. Sterling has fallen % in a week.

[00:01:03]Britain's foreign reserves are evaporating. And the US has communicated, in language that is way too clear to misread, that the IMF loan Britain desperately needs will not be approved until British troops withdraw from Egypt. Macmillan tells Eden in plain English, "We cannot afford this war, not because we lack the army, not because we lack the political will, but because we lack the currency."

[00:01:27]Within 48 hours, Britain announces a ceasefire. The troops come home. The canal stays with Egypt, and the 400-year-old British Empire, the empire of Drake and Nelson, of Clive and Wellington, of Churchill himself, effectively ends. And it does not end on the battlefield. It ends with a phone call about a margin call.

[00:01:47]Now, we need to hold that image for the next 20 minutes, because every empire in history has ended in some version of that moment. Not necessarily a moment of military defeat, the moment when the math stops working and the political class realizes all at once that the version of the world they have been operating in is over.

[00:02:07]I published a piece a few weeks back on the Timeless Investor called The Stages of Imperial Decline.

[00:02:14]It's a pretty ambitious essay and the thesis is simple. Empires don't fall in events, they fall in sequences and the sequence is almost always the same. Four stages, four empires, one pattern and we, the United States in 2026, are not at the end of that pattern. We are squarely in the middle of it. Let me show you what I mean.

[00:02:37]Strip away the togas and the galleons and the imperial dreadnoughts and every empirical imperial decline in recorded history seems to follow the same four stages roughly in order, sometimes overlapping, but pretty consistent. Stage one, you have fiscal overreach. The empire's commitments outgrow its tax base.

[00:02:58]Entitlements expand during periods of abundance and prove politically impossible to retract when the abundance fades. Soldiers, pensions, public games, subsidies to favor constituencies, infrastructure capital projects. The fiscal math gets worse year after year and nobody in the political class is willing to be the one who cuts.

[00:03:19]Stage two, currency debasement and financial engineering. Rather than raise taxes, politically suicidal, or cut spending, also politically suicidal, the empire reaches for the monetary lever. Coins get clipped, silver content drops, paper money gets printed, the central bank's balance sheet quadruples, financial innovation starts to paper over a difficult fiscal arithmetic. Stage three, imperial sprawl and military overextension. Commitments made at the height of power persist long after the underlying economy base can sustain [music] it.

[00:03:56]Every colony, every garrison, every treaty becomes like a permanent liability. The empire has too many things to defend [music] in too many places, and it cannot afford to shrink any of them.

[00:04:07]And stage four, you have an internal legitimacy crisis. When stages one through three produce visible distress, inflation, inequality, stagnation, the empire responds not with structural reform, but with edicts, price controls, scapegoating, and institutional decay.

[00:04:24]The state loses the trust of its own citizens before it loses to any external rival. This is the entire framework, four stages. Hold it loosely.

[00:04:34]Real history is messier than any framework, but hold it.

[00:04:37]Because what I want to show you next is that exact sequence played out in a similar order in four different empires across 2,000 years of history.

[00:04:46]And it is playing out right now in the country that most of you are listening to this from. Case one, the Roman Empire, of course. Where else to start there, of course? Rome did not fall to the barbarians. That's the children's version. Rome fell to its own arithmetic, and then the barbarians walked in.

[00:05:04]The Roman fiscal crisis didn't begin with the Visigoths. It began with Cura Annonae, the grain dole, which started under the Republic as emergency famine relief, became under the emperors a permanent entitlement for 200,000 households in the city of Rome. Add the congiaria, cash distributions on the accession of each new emperor, at the imperial games, add the 25 to 30 standing legions, each requiring pay, land grants on retirement, and donatives to the troops every time a new Caesar took office. That's stage one. Roman fiscal commitments by the 2nd century had run completely ahead of any conceivable tax base. The Antonine Plague and the Crisis of the 3rd Century didn't cause that problem. It just exposed it.

[00:05:47]Stage two right on schedule. The silver denarius under Augustus was 95 to 98% silver. Under Nero, 93. Under Caracalla, in the 50s.

[00:05:57]By the middle of the third century, the coin that had replaced it, the antoninianus, contained less than 5% silver. It was a copper coin with a silver wash that literally wore off in your purse.

[00:06:09]Prices did what prices do when you quadruple the money supply in a century.

[00:06:13]Contemporary Egyptian papyri show wheat prices rising roughly 200-fold between the first and the fourth centuries.

[00:06:21]Stage three overextension was geographic and was visible on any map of the empire.

[00:06:25]Hadrian's Wall to the Euphrates. Every mile of that frontier required garrisons, roads, supply chains, subsidies to client kingdoms. The legions that had once paid for themselves through conquest became, the moment Hadrian stopped expanding the empire, a pure cost center. Rome had run out of profitable places to conquer, but it could not afford to retreat. Every legion retired was a province lost.

[00:06:51]>> [music] >> And then stage four, the legitimacy crisis. In the year 301 AD, the emperor Diocletian issued one of the most extraordinary documents in administrative history, the Edict on Maximum Prices. Over a thousand goods and services, from grain to silk to a haircut, with legally mandated price ceilings enforceable by death. Failed within a decade. Goods disappeared from legal markets and reappeared on black ones. Producers stopped producing rather than sell at a loss. The edict was quietly abandoned because the alternative, actually executing every single merchant in the empire, was impossible. That is what stage four looks like. A state that cannot solve its fiscal problem makes the symptom of the problem illegal.

[00:07:33]The Western Roman Empire did not really fall in 476 AD. It hollowed itself out across the third and fourth centuries.

[00:07:40]And then there was nothing left to defend that any Roman cared about believing in or defending.

[00:07:47]Case two, Ming China. Fast forward 1,100 years and travel 6,000 miles to the east. Same pattern, very different costumes. The Ming inherited from the Mongols a system of in-kind taxation, grain, cloth, corvée labor, optimized for a subsistence agrarian economy.

[00:08:05]As China commercialized through the 15th and 16th centuries, and it commercialized faster than Europe did in the same period, this system became increasingly inadequate. The Great Wall rebuilding program, the northern garrisons against the Mongols, the massive treasury fleets of the Yongle era, and a Forbidden City bureaucracy that metastasized across four centuries.

[00:08:25]All of it demanded revenue the tax system was structurally unable to collect. Stage one, classic fiscal overreach. Stage two, monetary chaos, is where the Ming case becomes uniquely interesting and uniquely relevant to anyone thinking about today. The Ming had already tried paper money, the Da Ming Baochao, launched in 1375 AD. It hyper-inflated within 75 years and was effectively abandoned. So, China reverted to silver.

[00:08:54]But, here's the part many, many people don't realize. Silver in China was not minted by the state. It was weighed. And the supply of silver was not a Chinese policy variable. It was Japanese, and after 1545, it was the Potosi mines in Spanish Peru, 6,000 miles across the Pacific.

[00:09:12]When the single whip tax reform of the 1580s consolidated most tax obligations into silver payments, the Ming state quietly tied its fiscal survival to the flow of foreign metal that it did not control. And then in the 1630s, the Spanish fleet was disrupted. Japanese silver exports collapsed, and the Ming money supply contracted violently in the exact decade the state needed to pay armies to fight rebellions.

[00:09:38]Stage three, the overextension was the Wanli Emperor's three simultaneous wars in the 1590s against the Mongols in the Northwest, against Hideyoshi's Japanese invasion of Korea, against internal revolts in the Southwest. The combined cost exceeded 10 million taels of silver in the year the central government collected four.

[00:09:59]Which brings us to stage four.

[00:10:01]And this is my favorite because the punchline reads like a fiction story.

[00:10:06]By the 1640s, the Ming state was collecting taxes through bandits it had relabeled as soldiers and fighting rebellions led by former postal workers laid off as a budget cutting measure.

[00:10:19]This is not a metaphor.

[00:10:21]The man who took Beijing in 1644, ended the Ming Dynasty and drove the last Ming emperor to hang himself from a tree in the Imperial Garden. His name was Li Zicheng.

[00:10:32]And he had been a postal worker. He lost his job in a Ming austerity program, started a revolt, 20 years later he was sitting on the dragon throne.

[00:10:40]The Manchus did not conquer a functioning China. They walked into a vacuum left by a state that had already lost the mandate of heaven. Which, stripped of the cosmological language, is exactly what legitimacy crisis means.

[00:10:58]Case three, Habsburg Spain. Same pattern, different century, different continent.

[00:11:03]>> [music] >> Charles V inherited Spain, the Low Countries, Austria, the crown of the Holy Roman Empire, and a century later the silver of the New World. On paper, the wealthiest empire in human history to that point.

[00:11:16]The Spanish crown then defaulted in 1557, then 1560, then 1575, then 1596, 1607, 1627, 1647, and 1652.

[00:11:28]Eight sovereign defaults in roughly a century, once per reign.

[00:11:32]Please stop and consider that for a second. The richest empire in the world, sitting on top of the largest silver mine in human history, defaulted on its own debt eight times in 100 years.

[00:11:46]The silver from Potosi, and I've written about this before, we've put articles out before. I'll make sure to link them in in the comments below, guys. But, the silver from Potosi did not enrich Spain.

[00:11:57]It passed through Spain. Paying Genoese bankers who had financed Spanish wars against France, the Dutch, the Ottomans, and the English. Spain was the conduit, not the beneficiary.

[00:12:09]Now, stage two debasement was subtler than Rome's. It happened not through silver coin, but through the vellon, the copper small change currency of everyday Castille.

[00:12:20]Philip the III flooded Castille with copper coinages to cover short-term fiscal gaps. By the 1620s, the vellon had lost roughly 80% of its purchasing power against silver.

[00:12:32]Castilian merchants kept two price books, one for silver, one for copper.

[00:12:36]A preview, in my opinion, of every bimetallic crisis in every empire since.

[00:12:42]Stage three, overextension, very, very evident with this empire. The 80 Years War against the Dutch, the 30 Years War against Germany, continuous Mediterranean conflict with the Ottomans, garrisons from Milan to Manila. Each war individually defensible, but cumulatively impossible.

[00:13:00]And then stage four.

[00:13:01]By the reign of Carlos the Second, the last Habsburg, the Spanish state was paralyzed. The Cortes could not raise revenue. The nobility had acquired tax exemptions that no king could revoke.

[00:13:14]Productive industries had emigrated to France, Holland, and England. When Carlos died childless in 1700, the other powers of Europe did not fight the War of Spanish Succession because Spain was valuable. They fought it because Spain was inert and it needed a new owner.

[00:13:30]Remember that line, inert and it needed a new owner. That is what stage four ends in. The empire doesn't collapse, it becomes a piece of property that other people fight over.

[00:13:39]And then case four, Britain, which brings us back to where we started. Everything needs to go in a full circle, right? The British case is the most instructive of the four, the most recent, the best documented, and uniquely, the empire whose relative decline happened without a catastrophic collapse. Britain is the optimistic case. And even the optimistic case is sobering.

[00:14:02]Stage one, the First World War cost Britain roughly 35 billion pounds in 2020 money and transformed the country from the world's largest creditor into a major debtor, primarily to the United States.

[00:14:16]The Second World War completed the process.

[00:14:20]Lend-Lease was not a charity. It was a mortgage on the entire empire. By 1945, Britain owed the US and the Sterling area, India, Egypt, Australia, debts it could not realistically repay on any timeline short of generations.

[00:14:36]Then stage two, financial engineering.

[00:14:39]Not explicit debasement the way Rome did it, the long managed decline of the Sterling.

[00:14:45]The 1925 return to gold at pre-war parity, Churchill's decisions, Keynes how, crushed British exports and forced a decade of deflation. The 1931 abandonment of gold, the 1949 devaluation, >> [music] >> 403 to 280 against the dollar.

[00:15:04]The 1967 devaluation, each one announced as a one-time adjustment, each one part of the same sequence. Then stage three, at the 1945 peak, Britain had military commitments in Germany, Palestine, Egypt, Greece, India, Malaya, Hong Kong, the Caribbean, and across Africa. Within 20 years, most were gone. Not because Britain chose strategic retrenchment, because Britain could no longer pay the bills. India in '47, Palestine in '48, and then Suez in '56, the moment we opened with. The moment the US Treasury made the phone call and the British government was forced to fold in 48 hours.

[00:15:43]This That was stage three meeting stage two head-on, like a train crash. The empire ended over a margin call. Stage four, milder than Rome's. The winter of discontent in 1978-1979, the three-day week, the IMF bailout of 1976, Thatcher's confrontation with the unions, the symptoms of a society arguing over how to divide an ever-shrinking pie.

[00:16:08]Britain survived. It adapted. It is still a very serious country, but it is not an empire, and the transition cost two generations of relative decline. But that's the optimistic case.

[00:16:20]And it's worth remembering.

[00:16:22]Now, let's focus on the United States, cuz the United States is an empire. Whatever you want to think, it is an empire. And let's hold up this framework to it in the year 2026 and see where we score it honestly. Stage by stage, I'm going to try to stay away from theatrics and doomerism.

[00:16:38]And the doomer trap, guys, is real and very lucrative. Readers and viewers love it. For some reason, and there's probably a psychology paper buried in here somewhere, and I'm going to try virulently not to fall into it, because the truth is more uncomfortable than collapse. The truth is that we are somewhere in the middle of the pattern.

[00:16:56]And the question is not whether the pattern applies, but whether we can be the first great power in recorded history to break it.

[00:17:03]So, stage one, fiscal overreach. Honest score, yes. Clearly.

[00:17:09]The US ran a deficit of 6.3% of GDP in fiscal year 2025, in peacetime, at full employment, in the seventh year of an economic expansion, federal debt held by the public exceeded 100% of GDP in 2024 and is on track for 120% by the early 2030s under the CBO's own baseline.

[00:17:30]Net interest expense past defense spending in 2024 and is now the second largest line item in the federal budget behind social security and closing on it. Mandatory spending social security, Medicare, Medicaid is structurally growing faster than GDP and is politically untouchable. Every serious observer agrees on the arithmetic in the situation. The disagreement is only about timing.

[00:17:55]That is textbook case one.

[00:17:58]Argue with the CBO, argue with whoever you want. I think we're clearly stage one, we're clearly there.

[00:18:04]Stage two, currency debasement.

[00:18:07]Partially.

[00:18:08]I think partially, but different from the historical cases. The dollar has not been debased in the Roman sense. No one is clipping coins, but the Federal Reserve's balance sheet expanded from roughly $900 billion in 2008 to a peak near 9 trillion in 2022, a tenfold increase. Dollar purchasing power has declined roughly 25% since 2020 alone. The US has monetized deficits in a way that would have been unthinkable in the Volcker era.

[00:18:36]But the reason this is different from the historical cases, and I want to be fair to the bull case here, is that the dollar is the global reserve currency and every attempt to find a replacement has failed or stalled. The petrodollar system continues to generate structural demand for dollars even as the US fiscal fundamentals deteriorate. That is a genuine historical exception and we would be remiss not to point it out. This is not the same as that, right? Things are somewhat different today. But this is the point that the bulls often forget, nothing is permanent. The Spanish silver standard was a structural advantage, too, until it wasn't. The pound was the world's reserve currency for 120 years before Sterling broke at Suez. Reserve currency status is a consequence of imperial strength, not a substitute for it.

[00:19:26]Honest score?

[00:19:28]I think early to mid-stage, too. With a structural escape valve the historical cases do not have, but not a permanent one.

[00:19:35]Stage three, overextension. Clearly, yes. Though uniquely the US is beginning to adjust.

[00:19:42]The US maintains roughly 750 military bases in 80 countries. Treaty commitments covering most of the industrialized world, a navy sized for a two-ocean war with a pure adversary that the United States does not currently face.

[00:19:58]The defense budget has grown in real terms for eight consecutive years while the force has shrunk in numbers. The Pacific pivot, the Ukraine commitments, the Middle East deployments, NATO expansion, any one of them individually is defensible.

[00:20:10]All of them simultaneously, we're running 6% deficits in peacetime, that is the textbook definition of stage three.

[00:20:19]The optimistic read, and I want to give the optimistic read its due, is that the political class class across both parties over the last decade has started to make actual strategic choices. Prioritizing Asia, pushing Europe towards self-defense, reducing the Middle Eastern footprint, I guess until the war started in Iran.

[00:20:38]This is generally a meaningful break from the Ming and Spanish patterns where overextension continued past the point of fiscal viability until the system simply broke.

[00:20:49]Stage three is visible to me. Visible, we are overextended, but uniquely among the four historical cases there appears to be political will to adjust. Whether that will is sufficient, we will find out. And then there's stage four, the legitimacy crisis.

[00:21:08]We'll see. Trust in federal institutions is at or near historical lows in every major survey. Congressional approval has been under 25% for most of the last 15 years. Both parties routinely question the legitimacy of election outcomes they lose. Rent control is expanding in major cities, price gouging laws, drug price caps, student debt forgiveness by executive order. The small edicts of the state that cannot solve root problems.

[00:21:35]But I want to say this clearly. I don't think the United States is Rome of 301 AD. Our property rights still function.

[00:21:44]The currency is still accepted globally.

[00:21:46]Contracts are still in force. The civil society institutions that carried Britain through its relative decline, universities, a free press, independent courts, a professional military, all of them still exist here.

[00:21:58]Each of them is under stress, but none of them are yet broken.

[00:22:02]My honest score, early stage four. The symptoms are real, but the disease is not yet terminal.

[00:22:08]Now, here's the most important part that the imperial decline content gets wrong.

[00:22:14]The pattern does not predict collapse.

[00:22:16]It predicts a sequence of choices, and the choices still exist. Rome, Ming China, and Habsburg Spain did not fall because the decline was inevitable. They fell because at each stage the political system chose the short-term solution.

[00:22:30]Debase the coin, print the paper, pass the edict, fight the next war over structural reform.

[00:22:36]Every one of those empires had leaders who saw the problem clearly, but none of them had political systems that could act on it.

[00:22:44]Britain is the counter example. And even Britain's transition was ugly, slow, and cost the country a century of relative decline. But Britain survived.

[00:22:53]It is a prosperous, functional nation today.

[00:22:56]That outcome was not predetermined, either. It was the product of institutional choices. Independent central bank, rule of law, functional courts, gradual imperial withdrawal rather than military collapse.

[00:23:09]The United States has a better starting position than any of the four historical cases. Larger economy, younger demographics than Europe or East Asia.

[00:23:18]Entrepreneurial culture, dominant capital markets, the reserve currency, the largest technology sector in the world, and still, despite everything, the global lingua franca and the destination of choice for some of the world's most interesting and creative people and entrepreneurs and builders and whatnot. The question here for all of us listening and for myself recording and thinking about this is not whether the US can collapse. The question is whether the US can be the first great power in recorded history to diagnose stages 1 through 4 while in them and make the structural choices that previous four empires were politically incapable of making.

[00:23:58]My honest view I don't know.

[00:24:01]The historical base rate is zero for five. Britain is the closest case and Britain managed graceful decline, not structural reform.

[00:24:10]But here is the part that matters for you and for me.

[00:24:13]You don't need to know the answer to position correctly. You don't need to predict the year sterling broke at Suez or the decade the Ming silver supply collapsed. You need to recognize that the pattern is real, the sequence is old, and the instruments that worked in four previous iterations are almost certainly the instruments that will work in this one.

[00:24:31]So here are five positioning principles.

[00:24:34]Here's what I know.

[00:24:35]Because this is what I've been writing about and building my company Lombard Equities around for 2 years now. Hard assets, durat- duration-matched fixed-rate debt, supply-constrained assets, and patient capital are the exact instruments that worked in every prior stage two and stage three environment of recorded history. The Weimar landlords survived hyperinflation. The Roman villa owners survived the 3rd century. Their families are still in Italy occupying the same hills 1,500 years later.

[00:25:03]The Ming gentry who held farmland through the dynastic transition did fine. The British landed classes who survived the 20th century still own roughly a third of England. Five principles, not theoretical. This is how I personally position my own capital and how I think about how we deploy money on behalf of our investors.

[00:25:20]One, the asset never fails, the capital structure fails, the currency fails, and the regimes fail.

[00:25:27]You do not need to predict the timing of decline to position for the pattern. You need to own things whose productive value does not depend on the regime that measures them. Land that builds, that grows food, buildings that house people, infrastructure that moves goods. Things like gold, for example, that will continue to have value no matter what the system does. These survive the collapse of the monetary and physical systems built on top of them, even when their nominal valuations whipsaw violently in the interim.

[00:25:55]Two, duration matters more than yield.

[00:25:59]A 6% return that survives a 30-year regime change is worth dramatically more than a 12% return that requires uninterrupted operations and perfection to compound.

[00:26:11]Yield is what you collect in fair weather. Duration is what you keep through everything else.

[00:26:17]Three, >> [music] >> match your debt to your asset and fix the rate. This is, I think, the single most important takeaway that I've ever encountered in my career as a real estate investor and as an investor in general.

[00:26:28]Burn it into your brain. In every stage two debasement in recorded history, the people who survived were the ones who had locked in fixed-rate debt against productive assets at the start of the inflation.

[00:26:42]The people who got crushed were the bondholders, lending at fixed rates while the currency they were repaid in lost value. Be the borrower against the hard asset, not the lender of the soft currency.

[00:26:52]>> [music] >> And I just want to take a quick detour here from my prepared remarks and say, "The notion that bonds are a conservative and safe place to put your money is laughable.

[00:27:02]Laughable. It is one of the most dangerous places to put your money."

[00:27:06]Let's talk about it. If you disagree with me, put it in the comments. I'm happy to hold I'm going to hold my hold my line on this particular point.

[00:27:13]Four. Fourth principle. Avoid structural reliance on conditions that have only recently been true.

[00:27:19]Cheap labor, stable currencies, open borders, predictable rule of law, easy credit, permanent low interest rates, these are the late empire conditions of every prosperous nation and system. They look permanent from the inside. They are not constants of nature. Any business model whose viability silently depends on all of these holding simultaneously is a model that will die in a real stress test.

[00:27:45]Five.

[00:27:46]Pay attention to what a shock would force the state to do. Not just what the state does today.

[00:27:52]The fiscal toolkit a state reaches for under stress is narrow, predictable, and consistent across 2,000 years of history. Higher and broader taxation, currency debasement, price controls, capital controls, forced sales at below market prices, survivor liability, taxing the living for the obligations of the dead. If you can imagine the policy response a future crisis will produce, you can imagine which of your assets are most exposed to it and which are positioned to survive.

[00:28:22]Let me close this up now. This is This is one of my longer videos. The stages of imperial decline are not a prediction, but they are a pattern.

[00:28:31]Four empires, four stages, 2,000 years, same sequence almost every time. The United States today in 2026 is somewhere in the middle of it.

[00:28:40]You don't need to know the timing to position correctly. You don't need to predict the year sterling breaks or the decade the dollar finally seeds its reserve status.

[00:28:49]You need to recognize that the pattern is real, the sequence is old, and the instruments that worked in most prior iterations of this are almost certainly the instruments that will work in this one.

[00:28:59]That is what I mean when I use the word timeless.

[00:29:04]If this kind of work interests you, the full essay with every chart, every citation, every case study, and in the depth this video cannot provide, lives on our Substack at The Timeless Investor. Link in the description, link in the pinned comment. Subscribe, hit that bell, share this with somebody who reads history seriously, who manages capital seriously, who thinks across long time horizons. That is the community we are building here with The Timeless Investor, and I'm genuinely grateful that all of you are part of it.

[00:29:32]Think well, act wisely, build something timeless, and thank you for being here.