An Experiment Incubated at Harvard to Resolve the Global Debt Crisis (Part 1 of 7)

1. Beneath the Balinese Stars: Encounter with an Observer of Civilizational Cycles

November 2022. Human civilization, that colossal vessel, was sailing into waters more unfamiliar than ever before. Like a planet drawn into a field of complex gravitation, its old orbital parameters were failing, while no new stable trajectory had yet been computed. A pandemic sweeping across the globe had acted as a potent catalyst, hastening the collapse and drift of old continental shelves.

At the invitation of Professor Gu Xueyong, academic chair of the G20 summit program, Han Feng departed his self-imposed island of isolation and flew to Bali.

Beneath the tropical stars there, the power-holders of the old world convened. They resembled ancient priests, attempting through archaic rites to rediscover for this increasingly unstable planet some absolute, immovable gravitational anchor. Yet on the cosmic scale, Han knew well, absolute stillness is nothing but an illusion.

It was in this paradox-laden arena that he encountered Ray Dalio.

More than a financier, Dalio was an “observer of civilizational cycles,” a geologist of the financial world. His works, Debt Crises and Principles, are not mere discourses on economics but expansive star charts, marking the trajectories and cycles of wealth and power across centuries. To speak with him face to face was, as Han described it, like a lifelong radio astronomer who had only observed pulsars through distant instruments, suddenly standing before a neutron star itself, feeling the tremor of its gravitational waves.

Figure 1. At the Tsinghua University Southeast Asia Center in Bali, I met Ray Dalio. I told him I was reading his book Debt Crises and had found deep insight in it; he was visibly pleased.

Dalio’s genius lay in distilling the bewildering complexity of human economic activity down to its most fundamental laws. He pierced through the fog of centuries of financial data like a geologist studying a core sample, uncovering the recurring cycles that sedimented like strata. In his constructed coordinate system, the medium through which humanity carried “consensus”—money—had traversed three distinct epochs of evolution.

To grasp where we stand in this moment, and where we may be headed, one must first understand these three epochs and the merciless logic of their evolution, as cold and unyielding as physical law itself.

The First Form: Hard Currency — The Universe of Value’s Bedrock

This was the first epoch of value, a primordial cosmos emerging from the invisible hand of the “market” itself. Here, the oldest stars were materials whose physical and chemical properties proved stable: shells, gold, silver. Their value did not arise from any central command but crystallized in countless human exchanges, like crystals precipitating out of a supersaturated solution. They were the first consensus of wealth to emerge spontaneously from the vast computational system of the human market.

Friedrich Hayek called it “non-state sovereign money.” Dalio, in more physical language, revealed its essence: these assets are not anyone else’s debt.

This was a definition as foundational as the coordinate origin. Gold’s existence depended on no contract, no promise. Its value was an objective reality, born of its physical properties intertwined with the collective subconscious of humankind. In Dalio’s taxonomy, real estate, stocks, and even the novel informational form we will later explore—Bitcoin—all belong to this category. They are the “ontological matter” of the value universe, the building blocks from which all complex structures arise.

Another key property of this form is its intensified resilience when civilization is struck by high-energy shocks. War, pandemic, financial collapse—whenever the delicate lattice of credit networks woven from agreements and promises is torn apart by higher-dimensional blows, value collapses inward toward these densest, most ancient singularities. Gold, across thousands of years of human history, has repeatedly played this role. Two civilizations may obliterate one another’s credit systems entirely, but neither can destroy the consensus of gold.

Hard currency, then, is the bedrock of the value universe. In every grand financial architecture, it plays the role of the silent, massive, indispensable “supermassive star,” maintaining the balance of the entire galaxy’s rotation.

The Second Form: Paper Money — The Age of the Gravitational Lens

As civilization’s complexity grew exponentially, the mass and density of the primordial cosmos were no longer sufficient to support the swelling volume of economic activity. The starry seas of global trade required a medium of liquidity far greater than the crustal reserves of gold could provide. Thus began the second epoch of value.

This era was pioneered by the bankers—goldsmiths and silversmiths seated on the wooden benches (banca) of Italy. They were the first engineers to discover the secrets of “space-time distortion.” Observing that the gold stored in their vaults remained dormant most of the time, they realized they could issue more claims to gold—banknotes, drafts, silver certificates—than the metal reserves they physically held.

Thus was born bank credit, the origin of debt money. It acted like a powerful gravitational lens, bending and amplifying the singular light of gold into countless virtual images.

Adam Smith observed that early banks typically maintained a leverage ratio of five to one: a single unit of gold reserves could support five units of paper money in circulation. This instantly quintupled market liquidity. The machine of the human economy was suddenly fed an unprecedented fuel, and the flames of the Industrial Revolution roared forth, propelling human civilization to a higher energetic state.

The Bretton Woods system, established after World War II, was the pinnacle of this age of the gravitational lens. It anchored the currency of the strongest economic power—the US dollar—to gold, and in turn, other national currencies to the dollar. It was a finely nested planetary system: satellites orbiting the primary star (the dollar), which itself orbited the ancient golden sun.

At this stage, with gold as the ultimate source of gravity and central banks acting as celestial mechanics adjusting orbits with care, the system could maintain a fragile, dynamic equilibrium. Dalio called this era’s money “Paper Money.” At its core, it was high-quality debt backed by true hard currency. It was a map—one that corresponded to a real continent of gold beneath it.

The Third Form: Fiat Money — The Great Decoupling and the Red Giant of Debt

Yet debt, by its nature, grows exponentially. When the number and velocity of satellites in a planetary system increase without end, their centrifugal force eventually exceeds the gravitational binding of the central star.

In 1971, that critical threshold was reached. The United States, the system’s core, had issued far more dollar debt than its gold reserves could redeem. President Nixon made a decision that seemed sudden but was in fact dictated by physical law itself: he severed the link between the dollar and gold.

This was the Great Decoupling of the financial cosmos.

From that moment, humanity entered the third epoch of value—the era of Fiat Money. Fiat, from the Latin, means “let it be done.” The value of currency no longer required any anchor in the physical world, deriving solely from the decrees and credit of sovereign states. The golden sun that had burned for millennia seemed to exhaust its hydrogen fuel overnight. The planetary system lost its gravitational center; all currencies became wandering planets, their only gravity fields formed by their issuing nations’ combined strength, military might, and future tax revenues (government bonds). National fiat credits ballooned like stars in their terminal stage, swelling into red giants.

In 2018, while on academic exchange at Columbia University, Han visited former Federal Reserve Chair Alan Greenspan in Washington, D.C. Greenspan showed him a chart he had drawn by hand, a document Han still keeps in his digital archive. It resembled a spectrogram of distant stars, precisely recording the “redshift of value” the dollar experienced after the Great Decoupling.

Pointing to the line tilting steadily upward, Greenspan explained in a voice as unemotional as the announcement of a physical constant: from 1971 to 2018, the dollar had devalued against gold by a factor of 26.

Figure 2. May 2018, in Washington D.C., during cherry blossom season, discussing Bitcoin with former Fed Chair Alan Greenspan in his office.

This was a half-century of slow, relentless evaporation of value. For individual lives lived within it, the change was imperceptible, like a gradual shift in atmospheric pressure. But on the macro scale of civilizational history, it was irreversible entropy growth, a vast dilution of consensus. It meant that in fifty years, anyone who had stored wealth in dollar bank accounts rather than hard currency had silently lost 96% of their purchasing power to the inflation of this red giant.

Once the dollar, the lead goose, broke free from gold’s gravitational pull, all currencies quickly followed. Today, no sovereign money on Earth is pegged to gold. Humanity as a whole had entered a purely unanchored experiment in credit money.

According to Dalio’s cycle theory, this experiment is now inevitably approaching its terminus. A complete long-wave debt cycle, like a galactic orbit, spans roughly a century. From the Great Depression of 1929 to today, nearly a hundred years have passed. Humanity is once again entering the chaotic gravitational zone of a global debt cycle—the “Three-Body Problem” of our age.

And this time, the storm’s center will form simultaneously over the two greatest civilizational entities: the United States and China.

Faye’s Closing Note for Episode 1

Faye closed her notebook and wrote:

Hard currency, paper money, fiat money—the three epochs resemble three great migrations. And now, we are leaving behind the old gravitational center.

The suspense remains: In the next episode, Han Feng turns his gaze eastward—to China. How did the “real estate standard” ignite a civilization-scale credit expansion, and why has it reached its physical limits?

Preview | Episode 2: The Genesis Experiment on the Eastern Continent — Land as Foundation.

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