Ray Dalio Changing World Order Commentary
Ray Is Spot On Except For One Addition
Ray Dalio presents a brilliant analysis of historic world economic “Big Cycles” in the rise and fall of nations, and where the USA is now.
We believe that Ray gets it right except for one addition that he did not dare add to the video for fear of having it banned by Youtube (censorship by Google Alphabet).
That addition which he did not dare add was how the CCP (Communist China) sped up the decline of the USA by gradually buying and subsequently blackmailing many in the US Fed Government (including the current President).
Through this process and with the help of outside powers, they were able to rig the 2020 Presidential Election, thereby installing their hand-picked man into the White House.
Principles for Dealing with the Changing World Order by Ray Dalio
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Mar 2, 2022
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Ray Dalio Changing World Order Commentary
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FULL VIDEO TRANSCRIPT
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[Music] the changing world order
the times ahead will be radically different from those that we’ve experienced in our lifetimes
though similar to many times before how do i know that because they always have been
[Music] over my roughly 50 years of global
macroeconomic investing i’ve learned the hard way that the most
important events that surprised me did so because they never happened in my
lifetime these painful surprises led me to study the last 500 years of history for
similar situations where i saw that they had indeed happened many times before
with the ups and the downs of the dutch [Music]
british and u.s empires
and every time they did it was a sign of the changing world order
this study taught me valuable lessons that i’m going to pass along to you here in a distilled form
you can find the comprehensive version in my book principles for dealing with
the changing world order let me begin with a story that brought
me to this point about how i learned to anticipate the future by studying the
past [Music]
in 1971 when i was a young clerk on the floor of the new york stock exchange the
united states ran out of money and defaulted on its debts that’s right the u.s ran out of money
how well back then gold was the money used in transactions between countries
paper money like the dollar was like checks in a checkbook in that it had no
value other than it could be exchanged for gold which was the real money
at the time the united states was spending a lot more money than it was earning by writing a lot more of these
paper money checks than it had gold in the bank to exchange for them as people turned these checks into the
bank for gold money the amount of gold in the u.s started to dwindle it soon
became obvious that the u.s couldn’t keep its promises for all the existing paper money so people holding dollars
rush to exchange them before the gold ran out recognizing that the u.s was going to
run out of real money on sunday evening august 15th president
nixon went on television to tell the world that the us was breaking its promise to let people exchange their
dollars for gold of course he didn’t say it that way he said it more diplomatically without making it clear
that the united states was defaulting strength of a nation’s currency is based on the strength of that nation’s economy
and the american economy is by far the strongest in the world accordingly i have directed the
secretary of the treasury to take the action necessary to defend the dollar
against the speculators i have directed secretary connelly to suspend temporarily the convertibility
of the dollar into gold or other reserve assets except in amounts and conditions
determined to be in the interest of monetary stability and in the best interest of the united states
i watched in ore realizing that money as we understood it was ending
what a crisis i expected the stock market to plunge
the next day so i got on the exchange floor early to prepare when the opening bell rang pandemonium
broke out but not the kind i expected the market was up
way up and went on to rise nearly 25
that surprised me because i never experienced a currency devaluation
before when i dug into history i discovered that the exact same thing happened in
1933 and had the exact same effect then paper dollars were also linked to gold
which the us was running out of because it was spending more paper money checks
then it had gold to exchange for them and president roosevelt announced on the
radio that he would break the country’s promise to exchange dollars for gold it
was then that i issued the proclamation providing for the national bank holiday
and this was the first step in the government’s reconstruction of our financial and economic fabric
the second step last thursday was the legislation promptly and
patriotically passed by the congress confirming my proclamation and broadening my powers
so that it became possible in view of the requirement of time to extend the holiday and lift the ban
of that holiday gradually in the days to come this law also gave authority
in both cases breaking the link to gold allowed the us to continue spending more
than it earned simply by printing more paper dollars since there was an increase in the
number of dollars without an increase in the country’s wealth the value of each
dollar fell as these new dollars entered the market
without a corresponding increase in productivity they went to buy lots of
stocks gold and commodities and hence caused their prices to rise
as i studied more history i saw that the exact same thing happened many many
times before i saw that since the beginning of time when governments spent much more than
they took in in taxes and conditions got bad they ran out of money and they needed
more so they printed more a lot more which made its value full and made the
prices of most everything including stocks gold and commodities rise
that’s when i first learned the principle that when central banks print a lot of money to relieve a crisis buy
stocks gold and commodities because their value will rise and the value of
paper money will fall this printing of money is also what happened in 2008 to
relieve the mortgage driven debt crisis and in 2020 to relieve the pandemic-driven economic
crisis and it almost certainly will happen in the future so i suggest that you keep this
principle in mind these experiences gave me another principle which is to understand what is
coming at you you need to understand what happened before you that principle led me to study how the
roaring 20s bubble turned into the 1930s depression
which gave me the lessons that allowed me to anticipate and profit from the 2007 bubble
turning into the 2008 bust [Music]
all these experiences led me to develop an almost instinctual urge to look to
the past for similar situations to learn how to handle the future well
changing orders [Music]
over the last few years three big things that hadn’t happened in my lifetime prompted me to do this study
first countries didn’t have enough money to pay their debts even after lowering interest rates to
zero so their central banks began printing lots of money to do so
second big internal conflicts emerge due to growing gaps in wealth and values this
showed up in political populism and polarization between the left who want to redistribute wealth and the right who
want to defend those holding the wealth and third increasing external conflict
between a rising great power and the leading great power as is now happening with china and the united states
so i looked back i saw that all these had happened together before many times
and nearly always led to changing domestic and world orders the last time this sequence happened was
from 1930 to 1945. what exactly is an order you might ask
it’s a governing system for people dealing with each other there are internal orders for governing
within countries typically laid out in constitutions and there is a world order for governing
between countries typically laid out in treaties internal orders change at different
times than world orders the weather within or between countries these orders typically change after wars
civil wars within countries international wars between countries
they happen when revolutionary new forces defeat weak old orders
for example the u.s internal order was laid out in the constitution in 1789
after the american revolution and it is still operating today even after the
american civil war russia got rid of its old order and established a new one with the russian
revolution in 1917 which ended in 1991 with a relatively bloodless revolution
china began its current internal order in 1949 when the chinese communist party
won the civil war you get the idea the current world order commonly called
the american world order formed after the allied victory in world war ii when
the u.s emerged as the dominant world power it was set out in agreements and
treaties for how global governance and monetary systems work in 1944 the new
world monetary system was laid out in the bretton woods agreement and established the dollar as the world’s
leading reserve currency a reserve currency is a currency that is
commonly accepted around the world and having one is a key factor in a country
becoming the richest and most powerful empire with a new dominant power and monetary
system established a new world order begins these changes take place in a timeless
and universal cycle that i call the big cycle
i’ll start with a quick overview then give you a more complete version
and then direct you to my book if you want more as i studied the 10 most powerful
empires over the last 500 years and the last three reserve currencies
it took me through the rise and decline of the dutch empire and the gilder
the british empire and the pound the rise and early decline in the united
states empire in the dollar and the decline and rise of the chinese
empire and its currencies as well as the rise and decline of the spanish
german french indian japanese russian and ottoman empires
along with their significant conflicts as measured in this chart
to understand china’s patterns better i also studied the rise and fall of chinese dynasties and their monies back
to the year 600 because looking at all these measures at once can be confusing i’ll focus on the
four most important ones the dutch british us and chinese
you’ll quickly notice the pattern now let’s simplify the form a bit
as you can see they transpired in overlapping cycles that lasted about 250
years with 10 to 20 year transition periods between them typically these transitions have been
periods of great conflict because leading powers don’t decline without a
fight so how am i measuring an empire’s power
in this study i used eight metrics each country’s measure of total power is
derived by averaging them together they are education inventiveness and technology
development competitiveness in global markets economic output share of world
trade military strength the power of their financial center for capital markets and
the strength of their currency as a reserve currency because these powers are measurable we
can see how strong each country is now was in the past and whether they’re
rising or declining by examining the sequences from many
countries we can see how a typical cycle transpires
and because the wiggles can be confusing we can simplify it a bit to focus on the
pattern of cause effect relationships that drive the rise and decline of a
typical empire as you can see better education typically leads to increased innovation
and technology development and with a lag the establishment of the currency as
a reserve currency you can also see that these forces then declined in a similar order reinforcing
each other’s decline let’s now look at the typical sequence of events going on inside a country that
produces these rises and declines in a nutshell the big cycle typically
begins after a major conflict often a war establishes the new leading power
and the new world order because no one wants to challenge this power a period of peace and prosperity
typically follows as people get used to this peace and prosperity they increasingly bet on it
continuing they borrow money to do that which eventually leads to a financial
bubble the empire’s share of trade grows and when most transactions are conducted in
its currency it becomes a reserve currency which leads to even more borrowing
at the same time this increased prosperity distributes wealth unevenly
so the wealth gap typically grows between the rich haves and the poor have-nots
eventually the financial bubble bursts which leads to the printing of money
and increased internal conflict between the rich and the poor which leads to some form of revolution to redistribute
well this can happen peacefully or as a civil war while the empire struggles with this
internal conflict its power diminishes relative to external rival powers on the
rise when a new rising power gets strong enough to compete with the dominant
power that is having domestic breakdowns external conflicts most typically wars take place
out of these internal and external wars come new winners and losers
then the winners get together to create the new world order and the cycle begins again
as i looked back i saw that these cause and effect relationships drove the cycles of rises and declines all the way
back to the roman empire i saw how the stories of each one of these cycles
blended together with others before during and after in the same way as each
individual story blends with others to make the epic 500 year story that is our
collective history and like human life
no cycles are exactly the same but most are similar they’re driven by logical cause and
effect relationships that progress through stages from birth to strength and maturity
to weakness and inevitably decline however that’s like saying a person’s
life cycle takes 80 years on average without recognizing that many are much
shorter and many are longer while age can be a good indicator of
future longevity a better way is to look at health indicators
one can do that with empires and they’re vital signs too i found that by watching the indicators
of power change i was able to see what stage a country was in which helped me
to anticipate what was likely to come next now i’ll take you through the big cycle
in more detail give me 20 minutes and i’ll give you the last 500 years of history
and show you the similar patterns across the dutch british us
and chinese empires 500 years of big cycles
i’m going to describe the typical cycle by dividing it into three phases
the rise the top and the decline the rise
successful new waters that rise both internal and external are typically
started by powerful revolutionary leaders doing four things
first they win power by gaining more support than the opposition
second they consolidate power by converting weakening or eliminating the
opposition so they don’t stand in their way third they establish systems and
institutions that make the country work well and fourth they pick their successors well or create systems that
do that because a great empire requires many great leaders over several generations
at this stage soon after winning the fight there is typically a period of peace and
growing prosperity because the leadership is clearly dominant and has broad support so no one wants to fight
it during this phase leaders within the country have to design an excellent
system to raise the country’s wealth and power first and foremost to be great
they must have strong education which is not just teaching knowledge and skills
but also strong character civility and work ethic
these are typically taught in the family schools and religious institutions that provides a healthy respect for rules and
laws order within society low corruption and enables them to unite behind a
common purpose and work well together as they do this they increasingly shift
from producing basic products to innovating and inventing new
technologies [Music] for example the dutch rose to defeat the
habsburg empire and become superbly educated they became so inventive that they came up with a
quarter of all major inventions in the world the most important of which was
the invention of ships that could travel around the world to collect great riches
and the invention of capitalism as we know it today to finance those voyages
they like all leading empires enhance their thinking by being open to the best thinking in the world
as a result the people in the country become more productive and more competitive in world markets which shows
up in their growing economic output and rising share of world trade
you can see this happening now as the us and china are roughly comparable in both
their economic outputs and their shares of world trade
as countries trade more globally they must protect their trade routes and their foreign interests from attack so
they develop great military strength if done well this virtuous cycle leads to
strong income growth which can be used to finance investments
in education infrastructure and research and development they must also develop
systems to incentivize and empower those that have the ability to make or take
wealth in all of these cases the most successful empires used a capitalist approach
[Music] to develop productive entrepreneurs
even china which is run by the chinese communist party used the form of this
capitalist approach [Music]
deng xiaoping when asked about this said it doesn’t matter if it’s a white cat or
a black cat as long as it catches mice and it’s glorious to be rich
to do this well they must develop their capital markets most importantly their lending
bond and stock markets that allows people to convert their savings into investments
to fund invention and development and share in the successes of those who
make great things happen the dutch created the first publicly listed company the dutch east india
company and the first stock market to fund it which were integral parts of the
system that produced massive wealth and power as a natural consequence the greatest
empires developed the world’s leading financial centers for attracting and distributing the world’s capital
amsterdam was the world’s financial center when the dutch were preeminent
london when the british were on top new york is now and china is quickly developing its
financial centers most importantly the capitalists the
governments and the military must work together not only did the dutch work well
together they were one in the same the dutch east india company was granted
a trade monopoly from the government and had its own officially sanctioned military to go out into the global
markets to make and take wealth the british followed with the british
east india company and had a similar coordination of their government business and military operations
the u.s military-industrial complex followed suit as does the chinese system today
as the country becomes the largest international trading empire its transactions can be paid with its
currency making it the preferred global medium of exchange
and because their currency is so widely accepted and frequently used people
around the world want to save in it making it the preferred storehold of
wealth and thus the world’s leading reserve currency
the gilder was the world’s main reserve currency when the dutch-led world trade
the pound was when the british led and the dollar has been since the u.s
led naturally china’s currency is increasingly being used as a reserve
currency having a reserve currency enables the empire to borrow more than other
countries that advantage is huge [Music]
think about it people all over the world are eager to save and hence lend back
their currency to the empire countries without a reserve currency don’t have that
and when the empire runs out of its own money remember the united states in 1971
they can always print more the exorbitant privilege afforded by the
empire’s reserve currency leads borrowing to increase and the beginning of a financial bubble
this series of cause-and-effect relationships leading to mutually supportive financial political and
military powers bolstered by the borrowing power of a reserve currency have gone together since history began
to be recorded all the empires that became the most powerful in the world
followed this path to the top
[Music]
while in the top phase most of these strengths are sustained embedded within
the fruits of their success are the seeds of their decline as a rule as people in these rich and
powerful countries earn more that makes them more expensive and less
competitive relative to people in other countries who are willing to work for less
at the same time people in other countries naturally copy the methods and technologies of the leading power which
further reduces the leading power’s competitiveness for example british shipbuilders had
less expensive workers than dutch shipbuilders so they hired dutch designers to design
better ships that were built by less expensive british workers making them more
competitive which led the british to rise and the dutch to decline
also as people become richer they tend not to work as hard they enjoy more leisure pursue the finer
and less productive things in life and at the extreme become decadent
values change from generation to generation during the rise to the top from those who had to fight to achieve
wealth and power to those who inherited it they’re less battle-hardened steeped in
luxuries and accustomed to the easy life which makes them more vulnerable to challenges the golden era of the dutch
empire [Music]
and the victorian era of the british empire
[Applause] were such high prosperity periods like
this as people get used to doing well they increasingly bet on the good times
continuing and borrow money to do that which grows into financial bubbles
naturally the financial gains come unevenly so the wealth gap grows
wealth gaps are self-reinforcing because rich people use their greater resources
to reinforce their powers for example they give greater privileges to their children like better education
and they influence the political system to their advantage this causes the gaps in values politics
and opportunities to grow between the rich haves and the poor have-nots
those who are less well-off feel the system is unfair so resentments grow but
as long as the living standards of most people are still rising these gaps and resentments don’t boil over into
conflict having the world’s reserve currency inevitably leads to borrowing
excessively and contributes to the country building up large debts with foreign lenders while this boosts
spending power over the short term it weakens the country’s financial health and weakens the currency over the
long term in other words when borrowing and spending are strong the empire appears
very strong but its finances are in fact being weakened [Music]
the borrowing sustains the country’s power beyond its fundamentals by financing both domestic over consumption
and international military conflicts required to maintain the empire
inevitably the cost of maintaining and defending the empire becomes greater than the revenue it brings in so having
an empire becomes unprofitable for example the dutch empire overextended around the world
and fought war after increasingly expensive war with the british and other
european powers to protect its territory and trade routes the british empire similarly became massive bureaucratic
and lost its competitive advantages as rival powers particularly germany sword
leading to an increasingly expensive arms race and world war
the u.s has spent about eight trillion dollars on foreign wars and their consequences since september 11
and trillions more for other military operations and for supporting military
bases in 70 countries and it still isn’t spending enough to
support its military competition with china in the area around china
in this cycle the richer countries eventually get deeper into debt by borrowing from poorer countries that
save more it’s one of the early signs of a wealth and powershift this started in the united states in the
1980s when it had a per capita income 40 times that of china’s and started
borrowing from chinese who wanted to save in dollars because the dollar was the world’s reserve currency
similarly the british borrowed a lot of money from its much poorer colonies
and the dutch did the same at their top if the empire begins to run out of new
lenders those holding their currency begin to look to sell and get out
rather than to buy save lend and get in
[Music] and the strength of the empire begins to
decline the decline the decline comes from internal economic
weakness together with internal fighting or costly external fighting or both
typically the decline comes gradually and then very suddenly
when debts become very large and there is an economic downturn
and the empire can no longer borrow the money necessary to repay its debts
the financial bubble bursts this creates great domestic hardships
and forces the country to choose between defaulting on its debts or printing a lot of new money
it always chooses to print a lot of new money at first gradually and eventually
massively that devalues the currency and raises
inflation for the dutch this was the financial crisis brought about by financial
excesses and paying for the fourth anglo-dutch war similarly for the british it was paying
for its financial excesses and its debts from the two world wars
and for the u.s it’s been three cycles of debt finance booms and busts since
the 90s with the central bank stepping in each time with stronger measures
when the government has problems funding itself when there are bad economic conditions
and living standards for most people are declining and there are large wealth
values and political gaps internal conflict between the rich and
the poor as well as different ethnic religious and racial groups greatly
increases this leads to political extremism that shows up as populism of
the left or the right those of the left seek to redistribute the wealth while
those of the right seek to maintain the wealth in the hands of the rich typically during such times taxes on the
rich rise and when the rich fear their wealth and well-being will be taken away
they move to places assets and currencies they feel safer in these outflows reduce the empire’s tax
revenue which leads to a classic self-reinforcing hollowing out process
when the flight of wealth gets bad enough governments outlaw it those seeking to get out begin to panic
these turbulent conditions undermine productivity which shrinks the economic pie and
causes more conflict about how to divide the shrinking resources populous leaders emerge from both sides
and pledge to take control and bring about order that’s when democracy is most challenged
because it fails to control the anarchy and it is when the move to a strong populous leader who will bring order to
the chaos is most likely as conflict within the country escalates it leads to some form of revolution or
civil war to redistribute wealth and force the necessary big changes
this can be peaceful and maintain the existing order but it’s more often violent and changes
for example the roosevelt revolution to redistribute wealth was relatively peaceful and maintained the existing
internal order while the french revolution the russian revolution
and the chinese revolution were much more violent and led to new internal orders
this internal conflict makes the empire weak and vulnerable to rising external
rivals who seeing this domestic weakness are more inclined to mount a challenge
this raises the risk of great international conflict especially if the rival has built up a comparable military
defending oneself and one’s empire against rivals requires great military spending
which has to occur as domestic economic conditions are deteriorating and the
empire can least afford it since there is no viable system for peacefully adjudicating international
disputes these conflicts are typically resolved through tests of power [Music]
as bolder challenges are made the leading empire is faced with the difficult choice of fighting or
retreating fighting and losing is the worst outcome but retreating is bad too as it cedes
progress to the rival and signals that the empire is weak to those countries that are considering which side to be on
poor economic conditions cause more fighting for wealth and power which inevitably leads to some kind of war
wars are terribly costly at the same time they produce the tectonic shifts
that realign the new waters to the new realities of wealth and power
in the world when those holding the reserve currency and debt of the declining empire lose faith and sell
them that marks the end of its big cycle of the roughly 750 currencies that
existed since 1700 less than 20 percent now exist and all of them have been devalued
for the dutch this happened after their defeat in the fourth anglo-dutch war when they weren’t able to repay the
massive debts they built up during it this led to a run on the bank of amsterdam
and a desperate sell-off forcing massive money printing
which devalued the currency and the empire into irrelevance
for the british this happened after world war ii when despite their victory they could
not repay the massive debts they borrowed to fund their war effort this led to a series of money printing
devaluations and sell-offs in the british pound as the us and the dollar emerged
dominant and created a new world order at the time of this recording the united
states hasn’t yet reached this point while it has massive debt it spends more
than it earns and funds this deficit with more borrowing and printing huge amounts of new money
the big sell-off in dollars and dollar debt hasn’t yet begun and while there are great internal and
external conflicts occurring for all the classic reasons they’ve not yet crossed the line to become wars eventually out
of these conflicts whether they’re violent or not come new winners who get together and
restructure the losers debts and political systems and establish the new world water
then the old cycle and empire ends and the new one begins
and they do it all over again that’s a lot of detail i just threw at you to paint a picture of how the
typical big cycle transpires of course not all of them transpire in exactly
this way but most largely do so much so that it seems like the stories of rises
and declines stay essentially the same and the only things that change are the clothes the characters wear and the
technologies they use so where are we heading
[Music]
the future
most empires have their time in the sun and inevitably decline [Music]
reversing a decline is difficult because that requires undoing a lot that’s already been done but it’s possible
by looking at these indicators it’s pretty easy to see which stage of the big cycle an empire is in
how fit it is and whether its condition is improving or worsening
which can help one estimate how many years it has left still
these estimates aren’t precise and the cycle can be extended if those in charge pay attention to their vital signs and
improve them for example knowing that a person is 60 years old
how fit they are whether they smoke or not and a few other basic vital signs
one can estimate the person’s longevity [Music] one can do that with empires and their
vital signs too it won’t be precise but it will be broadly indicative and
give clear direction on steps to take to increase longevity it’s most often the case that a nation’s
greatest war is with itself over whether or not it can make the hard
decisions needed to sustain success as for what we need to do it comes down
to just two things earn more than we spend and treat each other well
all other things i mentioned strong education inventiveness being competitive and all the rest
are just ways of getting at these two things it’s easy to measure if we’re doing them
so like people who want to get fit let’s get on the program and improve our
vitals let’s do that individually and collectively
my goal for sharing this picture of how the world works and a few principles for dealing with it well is to help you
recognize where we are and the challenges we face and to make the wise decisions needed to
navigate these times well [Music]
since there is a lot more to discuss and we are out of time you can learn more in my book principles for dealing with the
changing world water and i look forward to continuing this conversation at
economicprinciples.org and on social media thank you and may the force of evolution
be with [Music]
so
so [Music]
you
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