State-Directed Credit Splurge

Doug Nolan

New data released Friday confirm ongoing historic Chinese Credit excess.

Total Aggregate Financing increased (a ridiculous) $524 billion during August to $40.5 TN, doubling July’s growth and exceeding estimates by almost 40%.

It was the strongest monthly gain since March’s record $759 billion. This pushed y-t-d (8-month) growth to $3.828 TN, up 45% from comparable 2019 ($2.650 TN) and 67% ahead of comparable 2018 ($2.297 TN) growth.

It’s worth noting Aggregate Financing surged an incredible $2.960 TN over the past six months, 62% ahead of comparable 2019 ($1.823 TN). At 13.3%, year-over-year growth was the strongest in several years.

With 2020 GDP estimates in the 2.0 to 3.0% range, the divergence between Credit and economic output is unprecedented.

That Credit growth has accelerated in the face of rapidly deteriorating economic prospects portends trouble ahead.

China’s “Terminal Phase” excess – including a major acceleration of late-cycle loans of deteriorating quality – is unparalleled in terms of both degree and duration.

Stoking a stock market mania while prolonging a historic apartment Bubble only exacerbates systemic fragility.

August New Bank Loans increased an above forecast $187 billion. This boosted y-t-d Loan growth to $2.102 TN, 20% ahead of comparable 2019. Six-month growth ($1.481 TN) was 29% above comparable 2019. Bank Loans were up 13.0% over the past year, 27% over two years, and 84% over five years.

Consumer Loans rose $123 billion during August. Year-to-date growth of $755 billion was 4.7% ahead of comparable 2019. However, six-month Consumer Loan growth of $722 billion was 23% ahead of comparable 2019. Consumer Loans were up 14.5% year-over-year, 33% over two years, 58% in three and 135% over five years.

Corporate Bonds expanded $53 billion. This pushed year-to-date growth to $580 billion, up 80% from 2019 and 133% from 2018 growth.

But the August winner of the Chinese Credit Sweepstakes goes to Government finance.

Government Bonds jumped $202 billion during the month to $6.362 TN, the largest monthly increase in a data series going back to 2017. At $837 billion, year-to-date growth was 59% ahead of comparable 2019. Government Bonds increased 18.7% over the past year, 38% over two and 66% over three years (5-yr data not available).

China’s M2 “money” supply expanded $166 billion in August, following July’s $139 billion contraction. This put year-to-date M2 growth at $2.200 TN, 38% ahead of comparable 2019 ($1.592 TN). M2 surged $2.947 TN, or 10.4%, over the past year. M2 rose 20% over two years, 30% over three, and 58% over five years – in one of history’s most spectacular monetary inflations.

The narrative surrounding Chinese economic recovery has turned decidedly positive. This week’s data confirmed a rapid recovery in Chinese exports and vehicle sales. Apartment sales have also rebounded. It would be impressive if not for the State-Directed Credit Splurge.

I have no doubt that Beijing can orchestrate economic growth through a massive expansion of “money” and Credit. But this comes at increasing costs to system stability. I would argue late-cycle “Terminal Phase” excess inflicts especially heavy damage.

Over time, a prominent geopolitical element to the global Bubble developed, a dynamic that has turned acute late in this historic cycle.

In this intensifying U.S./China cold war clash over global supremacy, a bursting Bubble would put one of these adversaries at serious disadvantage.

It’s not clear this plays a role in Federal Reserve policymaking. It surely does in Beijing.
I have for years fretted China might resort to military conflict to divert attention from its fallings in managing its domestic economic and financial systems. Even if domestic issues don’t create impetus to confront nefarious foreign adversaries, a faltering global Bubble backdrop nonetheless ensures myriad frictions and grievances.

Moreover, the longer the Chinese and global Bubbles inflate, the greater the risk that China’s economic, financial and military ascendancy gives rise to U.S./China hostilities. Taiwan has always seemed a logical flash point.

September 9 – Reuters (David Brunnstrom, Humeyra Pamuk and Ryan Woo): “Taiwan denounced China… over large-scale air and naval drills off its southwestern coast which it called a serious provocation and a threat to international air traffic. Yeh Kuo-hui, from Taiwan’s defence ministry’s operations and planning department, told a hastily-arranged news conference that China’s intentions could not be predicted. ‘We must make all preparations for war readiness,’ Yeh said…”

A China move to reclaim Taiwan territory - entangling Washington in a confrontation with Beijing - should no longer be considered wackoism. A Thursday afternoon Zerohedge headline asked a pertinent question: “What Possible Disruption Is Coming That Requires China To Start Massive Stockpiling Of All Possible Commodities?”

The Shanghai Composite dropped 2.8% this week, trading to the lows since July. China’s growth-oriented ChiNext Index sank 7.2%, trading Friday at two-month lows. The CSI Small & Midcap 700 dropped 4.7%. It appears Chinese stocks have reversed course – the downside following July’s speculative melt-up.

Oddly, European stocks were this week’s outperformers. On Brexit concerns currency weakness (pound down 3.6%), the UK’s FTSE Index surged 4.0%. Germany’s DAX jumped 2.8%, Italy’s MIB 2.2%, and France’s CAC40 1.4%.

Here in the U.S., technology stocks faced heavy selling pressure. The Nasdaq100 (NDX) sank 4.6%, with the Semiconductors down 3.5%. The S&P500 declined 2.5%. Curiously, Bank stocks fell 3.6%, with the Broker/Dealers sinking 4.1%.

At this point, corporate Credit remains resilient. Investment-grade corporate bond prices traded somewhat higher on the week, with junk bonds little changed. High-yield Credit default swap (CDS) prices actually declined this week. Investment-grade CDS increased a few basis points to one-month highs. Despite equity market weakness, the VIX traded down almost four to 26.87. NDX volatility (VXN) dropped to 35.27 from last Friday’s 41.74 close.

Markets are traditionally a reflection of the social mood.

These days, they’re more a representation of the mood of central bankers. If our monetary authorities are nervous, markets are prone to exuberance. When a somber social mood strikes fear in the central bank community, markets can turn downright manic.

The disparity between ebullient markets and disheartened social mood grows by the week. It was a tough week for the social mood of Americans living on the West Coast – Oregonians in particular. In only four days, Oregon lost over a million acres to forest fires. There was terrible loss of life and property. Pristine nature up in flames.

Long before Portland protests and mayhem, Oregonians were known for their cordiality and tolerance. It was in my adult life, residing in numerous states, that I better appreciated folks from Oregon were generally happy and nice people. I’ve thought a lot about why this is the case.

The state generally doesn’t suffer from huge wealth disparities. You can live a good life on an average worker’s wages.

For many of us, we’re more than content watching our beloved Oregon Ducks play football, strolling on the beach, and partaking in myriad recreational activities in the mountains. First, Covid-19 eradicated our football season. The Ducks and Ohio State Buckeyes were to go head-to-head at Autzen Stadium tomorrow. We’ve been managing through the despair, but at least we still have all our nature pursuits. Until Monday night.

I’ve been in love with the McKenzie River since I was a kid. When we decided to move our young son to Oregon, I initially thought of looking for property “up the McKenzie”. The hiking, biking, camping, fishing, rafting – the pristine river, spectacular waterfalls and awesome mountains.

The Simple Things in Life. Peace and Tranquility. In our nightly family prayer, we thank God for “the beautiful lakes, rivers and waterfalls.”

Since Monday night, the “Holiday Farm Fire” has consumed almost 200,000 acres. The community is absolutely heartbroken. We lost something precious.

Please know that climate change is real - and it is leaving increasingly deep scars on the environment and humanity.

Shinzo Abe and his struggle with Xi Jinping

The outgoing Japanese prime minister was right to reject appeasement

Gideon Rachman

Mr Abe has not made any concessions on the Senkaku-Diaoyu islands dispute. He knows that any step backwards would be seen in Beijing as a symbolic act of submission © James Ferguson/FT

The Shinzo Abe era has also been the Xi Jinping era. The current leaders of Japan and China took power within weeks of each other. Mr Abe was elected as prime minister of Japan in December 2012 at the age of 58. Just a month earlier, Mr Xi had been appointed as general secretary of the Chinese Communist party, at age 59.

This was more than a coincidence of timing. Mr Abe’s central task — as described by his closest advisers — was to strengthen Japan to cope with an increasingly powerful and authoritarian China.

The Japanese prime minister is now stepping down due to ill health, with his task incomplete. He has played a difficult hand with some skill and determination. But the uncomfortable truth is that Japan’s strategic dilemma cannot be resolved by Tokyo alone. In the end, the country’s fate may depend on political developments that are beyond its control — in the US and in Mr Xi’s China.

During the Xi era, it has become clear that China is intent on becoming the dominant power in Asia — and, perhaps, the world. Worryingly for any government in Tokyo, modern Chinese nationalism is suffused with anti-Japanese sentiment — dating back to Japan’s invasion and brutalisation of China in the 1930s. The two countries still have a territorial dispute and their planes and ships often challenge each other, around the islands that the Japanese call the Senkakus and the Chinese call the Diaoyu.

Any Japanese prime minister shaping a response to a rising China has to work with unpromising raw material. Japan’s population is ageing and shrinking and the country’s national debt is colossal. China’s economy became larger than that of Japan a decade ago and continues to grow at a faster rate. Beijing is pouring money into new warships and missiles at a pace that Japan cannot match.

China also faces a demographic challenge, as its own population ages. But the fact remains that the Chinese population is more than 10 times the size of Japan’s — and the asymmetry in power between the two nations grows wider every year. Pacifist sentiment is also deeply embedded in Japan. Changing the Japanese constitution to allow his country’s troops to fight overseas has proved to be politically impossible for Mr Abe.

Faced with these realities, it would be tempting for a Japanese government to adopt a policy of appeasement of Beijing. But any such policy would eventually come at a heavy price in Japanese freedom and autonomy.

It is far from clear that China’s territorial ambitions would stop at the uninhabited Senkaku-Diaoyu islands. There are think-tanks and government-backed newspapers in Beijing that have also questioned Japanese sovereignty over Okinawa — which has a population of 1.4m and which hosts America’s most important military base in the region. More broadly, many Chinese nationalists would love to gain a symbolic revenge for the 1930s by relegating Japan to the level of a tributary state.

Understanding all this, Mr Abe has not made any concessions on the islands dispute. He knows that any unilateral step backwards would be seen in Beijing as a symbolic act of submission.

But, even as he has stood firm on the islands, Mr Abe has managed to ease tensions with president Xi. The Japanese prime minister paid a successful visit to Beijing last December. Mr Xi was due to pay a state visit to Japan this year but it was delayed by Covid-19.

It would be foolish to assume that this improvement in relations is permanent. Facing difficulties with the US over trade, Taiwan and the South China Sea — Mr Xi could be seeking a temporary rapprochement with Japan. China may also sniff the possibility of eventually luring Japan towards a more neutral stance in Beijing’s own struggle with Washington. If US President Donald Trump continues to threaten Japan with trade sanctions, and to cast doubt on the US-Japan alliance, anti-American sentiment could rise in Japan.

The erratic nature of the Trump presidency has certainly made life more difficult for Mr Abe. One of Mr Trump’s first acts as president was to pull the US out of the Trans-Pacific Partnership — a multinational trade deal the Abe government had put huge energy into negotiating. Rather than go away and sulk, Mr Abe threw his energies into rebuilding relations with the White House and re-creating the TPP as a new deal (the Comprehensive and Progressive Agreement for Trans-Pacific Partnership), with all the original signatories bar America.

Mr Abe was the first foreign leader through the door of Trump Tower to congratulate the president after his election victory in 2016. His slightly obsequious posture may have been humbling, but it served a broader strategic purpose.

At the same time, Mr Abe has cultivated new friends — in particular, Narendra Modi, the prime minister of India. Japan is promoting a “free and open Indo-Pacific”, in which the region’s democracies work together. The implied contrast is with a closed and authoritarian Asia-Pacific that might emerge if Chinese power is uncontested.

Mr Abe has made many of the right strategic moves for his country. But he leaves office without knowing whether his efforts will ultimately be crowned with success. Responding to the rise of China is a generational challenge for Japan. Mr Abe’s successors will need luck, as well as skill, to navigate an uncertain future.


Chris Vermeulen
Chief Market Strategist


A Phase II rally in metals is just getting ready to start.

Phase II rallies are very explosive and tend to enter Parabolic trends.

Gold could rally 250% to 350% over the next several years.

Silver could rally 550% to 750% over the next several years.

My research team and I started exploring the relationship between the Gold-to-Silver ratio and the S&P 500 to find trends in Metals and the US Stock Markets. We called the collapse in the Gold-to-Silver ratio accurately back in March 2020, and we believe the current setup in the S&P to the Gold-to-Silver ratio shows the move in Precious Metals is far from over.

If you would like to review some of our earlier research posts, please take a minute to review these posts:





The Weekly Gold-to-Silver ratio chart below highlights our predictions from late March 2020 where we suggested the incredible spike in the ratio value was similar to the spike that took place in 2008. We identified a Flag/Pennant setup after each spike in the ratio volume and predicted a downward ratio decline would continue – pushing both Gold and Silver higher. We also suggested that Silver would begin to rally much faster than Gold throughout this move.


Now, with the Gold-to-Silver ratio sitting near 69.50, we believe another important ratio component has come into play for Precious Metals – the S&P to Gold-to-Silver ratio. If our earlier research continue to be correct, then the Gold-to-Silver ratio should continue to decline targeting levels near or below 50 at some point over the next 3+ years.

We believe this process may take place in a very transitional global stock market. When we suggest this term “transitional”, we are suggesting a very fluid and aggressive global stock market where capital will actively move from risks to opportunities very quickly. As the global environment shifts from stability to moderate crisis over the next 3+ years, we believe more and more capital will attempt to find safety in Precious Metals and other safe-havens.

The one thing that is really starting to concern me is the news and talk that the riots and protests in the US may get much worse over the next 6 to 12+ months. From a technical standpoint, it is very difficult to define technical indicators that attempt to quantify the effect of these riots and destruction to local economies. Although, we do have one technical analysis component to rely upon – price – since it always discounts external factors faster than the news can print stories. Because of this, we believe the new ratios we are sharing with you today are very important.

Please take a look below at our new Monthly ratio analysis of the SPX500 to the price of Gold. 

We believe this ratio chart highlights how global investors are moving away from safety, shown with rising ratio levels on this chart, and back into safety/metals, shown with declining ratio levels on this chart. Let’s take a look at a bit of history.

From 1981 to the peak in 1999 (nearly 18 years), investors shrugged off risk and piled capital into the US and global stock markets as the Reagan, Clinton, and DOT COM rallies ran back-to-back. The ratio rallied from low levels near 0.30 to high levels near 5.60. 

This represents a tremendous increase in the global stock market valuations while precious metals languished in a lower/sideways price range. Then, in late 1999 and early 2000, the ratio peaked and began to move downward. 

That downward ratio trend lasted nearly 10 years in total and produced the $1923.70 peak price in Gold in Sept 2011. The real rally in Gold didn’t begin to accelerate until mid-2005 – nearly 5 years after the peak in this ratio chart.

We believe the current move in Gold and Silver is similar to the 2000~2005 initial impulse move after the peak in 1999 (highlighted in LIGHT BLUE). This impulse move sets up a bigger, more aggressive downside price trend as the rally in precious metals accelerates and moves in a parabolic trend when markets near peaks (highlighted in RED). 

These aggressive moves are typically 2x to 3x (or more) than the normal precious metals price ranges and can be very explosive in nature. If we are correct in our analysis, the end of 2020, and throughout the next 2 to 3+ years, we may enter one of these explosive price phases in precious metals because of the current setup in this SPX500/Gold ratio pattern.

If the ratio declines from the current 1.78 level to a level near 0.40, this would represent a 77% decline. Our researchers believe this could prompt a 250% to 350% rally in Gold if the SPX500 stays above $2,200 (near the recent March 2020 lows). This would suggest that Gold could rally to levels above $5,500 to $7,500 over the next 3+ years.

Our researchers applied the same ratio analysis to Silver. Comparing the SPX500 to Silver ratio setup similar types of patterns, yet we noticed the impulse move in Silver is often shorter in time as Silver attempts to rally faster than Gold to make up for depressed price levels throughout the rally phase of the ratio levels. Silver, as many of us already know, tends to be the forgotten little brother to Gold.

Our researchers believe the impulse move in Silver has already completed. We believe the next phase of the decline in the SPX500/Silver ratio will begin the real fear move in Silver. This suggests a rally to levels above $36 to $45 fairly quickly – which will be very near to the all-time high of $49.82.

Using similar ratio analysis calculations in the chart below, we believe the upside price target for Silver would target 5.5x to 7.5x current Silver price levels, assuming the ratio level falls to levels below 0.30. That places the ultimate peak level in Silver near $156 to $213. 

As incredible as that may seem, if the SPX500 stays above the $2,000 price range and does not decline below 2016 lows because of Federal Reserve actions and global central bank support, then a ratio decline targeting recent historically low levels would equate into an even bigger upside price moves in precious metals. The ratio can’t fall to near historic ratio levels unless metals prices rally to levels to offset the advance in the SPX500 price.

As amazing as this may seem for many of you, we want to be one of the first and only research firms to provide technical research to support our predictions. Our past research continues to astound many professionals in the industry. 

Now, we are making a bold prediction that metals may enter a Phase II rally mode over the next 3 to 6+ months and that new phase may include an incredible parabolic upside price rally. 

Gold may target $5,500 to $7,500 or more. Silver may target $135 to $213 or higher. 

These are 350% to 750% price rallies in Gold and Silver – they are absolutely HUGE and a once-in-a-lifetime opportunity.

The last thing we want you to consider is that each of these research charts suggests these trends and cycles last about 7.5 to 11.5 years (on average). If this trend continues and we are only about 2.5 to 3 years into this current trend, then we have another 5 to 7+ years of upward trending in Gold and Silver before a peak price level may setup. 

If this research helps you better understand the opportunities setting up in Precious Metals, then take a minute to visit to learn more about how we help our members find better trades and protect their assets.

Nothing Has Changed With Taiwán

By: George Friedman

On Aug. 17, 1982, U.S. Secretary of State George Shultz sent a memo via an American diplomat to the Taiwanese government. On Monday, just over 38 years later, the memo was declassified.

Its contents were “secret” in that they were not publicly available, but the gist has been well known for some time; these points had to be part of U.S. relations with Taiwan and China because without them, U.S. policy toward Taiwan and China made no sense.

The decision to make public a document after nearly 40 years comes at a time of rising tensions, military drills and Chinese threats in the Taiwan Strait, and is meant to stave off more escalation by clarifying its position. The memo outlines the following:

That the U.S. had not agreed to set a date for ending arms sales to Taiwán

That the U.S. had not agreed to consult with China on arms sales to Taiwán

That the U.S. would not play a mediation role between Taipei and Beijing

That the U.S. had not agreed to revise the Taiwan Relations Act

That the U.S. had not altered its position regarding sovereignty over Taiwán

That the U.S. would not exert pressure on Taiwan to enter into negotiations with the People's Republic of China

In other words, the United States was not prepared in any substantial way to abandon Taiwan, and by releasing the memo, Washington confirmed that the position it has held since 1982 has remained in place, and that China should understand as much.

The original context for the memo had to do with Richard Nixon’s visit to China, a groundbreaking trip born of mutual concern. Russian-Chinese relations were bad after the bloody conflict on the Ussuri River.

China was afraid that the Soviets could defeat it. Meanwhile, the U.S., emerging bloodied from Vietnam, had weakened its position in Western Europe and feared the Soviets might take advantage of this opening. By restoring ties with the Chinese, the United States balanced this threat and opened a new threat against the Soviets if both attacked simultaneously.

It made no ideological sense but perfect geopolitical sense. Yet, it left open the status of Taiwan. The Chinese insisted that Taiwan was part of China, and Nixon agreed with them in principle so long as it was understood that it meant nothing in practice. The Soviet Union was the central issue.

By the 1980s, the Soviets were weakening a bit, the Chinese were increasing their power, and the Taiwan issue became more important. Ronald Reagan, of course, wouldn’t budge, so the memo – which was and remains the U.S. policy on China – slammed shut the door on modifying its Taiwan policy. It may not have explicitly said that the U.S. would intervene if China invaded Taiwan, but it left little to the imagination.

U.S.-Chinese relations have since deteriorated, and China has raised the possibility of invasion in various ways. Releasing this memo at this time does not surprise China, but does affirm that any Chinese move must take into account a U.S. intervention.

Unlike many China watchers, the Chinese themselves know that an amphibious assault on Taiwan – armed as it is with U.S. aircraft, submarines and missile defense batteries – would likely fail, and that failure would vastly weaken their pretense of being a power on par with the United States.

The memo itself didn’t deter a Chinese invasion at the time; the U.S. alliance structure was such that that would have been a bad idea anyway. Beijing may see the reclamation of Taiwan as inevitable, but the inescapable reality of war is that you can lose, which is a nonstarter for China.

The U.S. may have taken a defensive posture on Taiwan, but it’s an inflexible defensive posture. Japan, South Korea, Singapore, Australia and the rest of Southeast Asia may have reason to doubt U.S. commitments in the future, but for now the alliance remains very much intact. By releasing the memo, Washington is making it clear that nothing has changed.

Is Trump a Turning Point in World Politics?

Will Donald Trump’s presidency mark a major turning point in world history, or was it a minor historical accident? Trump's electoral appeal may turn on domestic politics, but his effect on world politics could be transformational, particularly if he gains a second term.

Joseph S. Nye, Jr.

nye207_Drew AngererGetty Images_trumpmnuchinpompeo

CAMBRIDGE – As the United States enters the home stretch of the 2020 presidential election campaign, and with neither party’s nominating convention featuring much discussion of foreign policy, the contest between President Donald Trump and Joe Biden apparently will be waged mainly on the battleground of domestic issues. In the long run, however, historians will ask whether Trump’s presidency was a major turning point in America’s role in the world, or just a minor historical accident.

At this stage, the answer is unknowable, because we do not know if Trump will be re-elected. My book Do Morals Matter? rates the 14 presidents since 1945 and gives Trump a formal grade of “incomplete,” but for now he ranks in the bottom quartile.

Top-quartile presidents like Franklin D. Roosevelt saw the mistakes of America’s isolationism in the 1930s and created a liberal international order after 1945. A turning point was Harry S. Truman’s post-war decisions that led to permanent alliances that have lasted to this day. The US invested heavily in the Marshall Plan in 1948, created NATO in 1949, and led a United Nations coalition that fought in Korea in 1950. In 1960, during the administration of Dwight D. Eisenhower, the US signed a new security treaty with Japan.

Over the years, Americans have had bitter divisions – among themselves and with other countries – over military intervention in developing countries like Vietnam and Iraq. But the liberal institutional order continued to enjoy broad support until the 2016 election, when Trump became the first nominee of a major party to attack it. Trump was also a skeptic about foreign intervention, and while he has increased the defense budget, he has used force relatively sparingly.

Trump’s anti-interventionism is relatively popular, but his narrow, transactional definition of US interests, and his skepticism about alliances and multilateral institutions, is not reflective of majority opinion. Since 1974, the Chicago Council on Global Affairs has asked the public whether America should take an active part or stay out of world affairs. Roughly a third of the American public has been consistently isolationist, reaching a high point of 41% in 2014. Contrary to conventional wisdom, however, 64% favored active involvement by the time of the 2016 election, and that number rose to a high of 70% by 2018.

Trump’s election and his populist appeal rested on the economic dislocations that were accentuated by the 2008 Great Recession, but even more on polarizing cultural changes related to race, the role of women, and gender identity. While he did win the popular vote in 2016 voters, Trump successfully linked white resentment over the increasing visibility and influence of racial and ethnic minorities to foreign policy by blaming economic insecurity and wage stagnation on bad trade deals and immigration. As president, however, according to former national security adviser John Bolton, Trump had little strategy, and his foreign policy was driven primarily by domestic politics and personal interests.

Just before Trump took office, Martin Wolf of The Financial Times described the moment as “the end of both an economic period – that of Western led globalization – and a geopolitical one, the post-cold war ‘unipolar moment’ of a US-led global order.” In that case, Trump may prove to be a turning point in American and world history, particularly if he is re-elected. His electoral appeal may turn on domestic politics, but his effect on world politics could be transformational.

The current debate over Trump revives a longstanding question: Are major historical outcomes the product of political leaders’ choices, or are they largely the result of social and economic forces beyond anyone’s control? Sometimes, history seems like a rushing river whose course is shaped by precipitation and topography, and leaders are simply ants clinging to a log in the current. In my view, they are more like white-water rafters trying to steer and fend off rocks, occasionally overturning and sometimes succeeding in steering to a desired destination.

For example, Roosevelt was unable to bring the US into World War II until the Japanese attack on Pearl Harbor, but his moral framing of the threat posed by Hitler, and his preparations to confront that threat, proved crucial. After World War II, the US response to Soviet ambitions might have been very different had Henry Wallace (who was replaced as vice president on the Roosevelt ticket for the 1944 election), not Truman, been president. After the 1952 election, an isolationist Robert Taft administration or an assertive Douglas MacArthur presidency might have disrupted the relatively smooth consolidation of Truman’s containment strategy, over which Eisenhower presided.

John F. Kennedy was crucial in averting a nuclear war during the Cuban Missile Crisis and then signing the first nuclear arms control agreement. But he and Lyndon B. Johnson mired the country in the unnecessary fiasco of the Vietnam War. In the century’s last decades, economic forces caused the erosion of the Soviet Union and Mikhail Gorbachev’s actions accelerated the Soviet bloc’s collapse. But Ronald Reagan’s defense buildup and negotiating skill, and George H.W. Bush’s skill in managing crises, played a significant role in bringing about a peaceful end to the Cold War, with a reunified Germany in NATO.

In other words, leaders and their skills matter – which also means that Trump cannot be easily dismissed. More important than his tweets are his weakening of institutions, alliances, and America’s soft power of attraction, which polls show has declined since 2016.

Machiavellian and organizational skills are essential for successful US presidents, but so is emotional intelligence, which leads to self-awareness, self-control, and contextual insight, none of which is evident with Trump. His successor, whether in 2021 or 2025, will confront a changed world, partly because of Trump’s idiosyncratic personality and policies. How great that change will be depends on whether Trump is a one-term or two-term president. We will know after November 3 whether we are at a historical turning point or at the end of an historical accident.

Joseph S. Nye, Jr. is a professor at Harvard University and the author of Is the American Century Over? and Do Morals Matter? Presidents and Foreign Policy from FDR to Trump.