The Economic Collapse You’ve Been Told Won’t Happen - Ray Dalio

60 years of global macro investing. Congratulations. >> Thank you. Yeah, Bridgewater just celebrated its 50th year and I just uh celebrated passing it along. So, yeah. Thank you. >> Yeah. Why after all that time, why did you get interested in a changing world order and how countries go broke? Like why does a global macro investor do that? Well, I'll uh I'll tell you a story. Um when I was between uh college and Harvard Business School in 1971, I was clerking on the floor of the New York Stock Exchange. And on August 15th, 1971, President Nixon gets on the television and he says, "You know our promise is to allow you to turn in those dollars for gold? Well, we're not gonna stick to them. That wasn't his wording exactly. Uh but um money as we knew it, which was gold, and the money as we now know it, which is fiat money, was like checks. Uh he he didn't uh we weren't going to get our money. And so I walked on the floor of the New York Stock Exchange the next morning clerking, and I figured the market would be down a lot. and it turned out it was up a lot and I hadn't been through a devaluation before. So, I studied history. Then I found out that on um March 15th or I think it was March 3rd, 1933, Roosevelt did the exact same thing on the radio and I studied it. And as a result of studying that, I understood the mechanics of that, why the devaluation had that kind of effect. And I studied the great depression because what I learned was that uh it may not have happened in my lifetime before these important things but I need to understand them. So I studied the great depression and that allowed me to uh make a lot of money and do very well in anticipating the 2008 financial crisis and then um to also uh the European debt crisis from 2010 to 2015. So I knew that uh things may have happened before. So I then needed to study. So there are things that are going on now that happen to happen in our lifetime before. And I figured uh that I needed to study that um what causes the rise and decline of a reserve currency or what causes the rise and decline of a great power. And so I needed to study the last 500 years, you know, because a rise and decline of a reserve currency or a great power takes arcs. You know, there's the British power. Before that, there was the Dutch and so on. And I needed to study that. I studied that 500 years. And then I saw that the same things happen over and over again for the same reasons. Um and now I'm at a stage in my life where what I want to do is pass along whatever I know to make it available to other people. I'm no longer, you know, um focused in and keeping it quiet. Um so that's why I studied that 500 years and that's why I uh wrote the uh book before the last one. The book before the last one is called principles for dealing with the changing world order. And if you read it, you see the pattern. And by the way, I also put out a free video for anybody. It's called the on YouTube changing world order. It's free. You can um you you can listen to it. So anyway, that's how I came about all this and and need to study. You need to study the mechanics of things that have happened before because a lot of what's happening now is most similar to what has happened before our lifetimes. I think there's an assumption that the modern world is so different. Technology, sophistication, interconnectedness, globalization. There is this sense that well, how applicable are lessons of the past really? Like, are we going to go back to medieval Europe, Rey? Is that where we're going to take our lessons from? And yet based on your investing track record, it seems like you can predict at least a bit of the future with what's happened in the past. >> Um, it's like a life cycle. Okay? It's like a disease or a process. Um, and the only thing I could tell you is you're wrong if you believe that um, there weren't times in the past that were more similar to the one you're used to. I mean, I think you you've got to know that now, right? I mean, uh, as we are seeing a different domestic order. Okay, you've never seen what's going on before, but it's very similar to the past and um like a cycle, like a life cycle. You're born at middle age maybe, then you get married, you have kids, uh you get older, you have a profession, you then retire and and you get sick, you die or something. There's this cycle that it goes over and over again and these things. But anyway, you could take it or leave it. Uh it's up to you. Um uh and so I can tell you I never would have understood what happened in 2008. For example, um 2008 was the first time that we had a debt crisis and interest rates hit zero since 1933. Okay. So what happens when you hit zero? The only way you would have seen what happens or what the sensible thing w what to do was quantitative easing. It's the first time it happened in in response to that. The last time it happened was 1933. Okay? Because what do you do when they get interest rates and they hit zero and you can't lower that. Okay? Well, you could take what I'm leaving or uh saying. There are five major forces and that repeat over and over again and interact and if you like I'll describe them. Um and but also you have to realize that all orders, all monetary orders, all political orders and all geopolitical orders, in other words, systems have broken down throughout history. So they're breaking they're breaking down in predictable ways especially if you know what you're looking for >> right okay but at least don't be ignorant okay about how do they break down what happened what hap today okay debt okay what I can take you through the debt numbers I'm sure we'll discuss the government debt numbers but I mean just in in in a nutshell we're spending the US government is spending $7 trillion a year. We're taking in $5 trillion a year. We're piling on the debt. That means you have to sell the debt. Somebody's got to buy the debt. There's a dynamic here and a mechanics. I described that in my recent books. I just want to pass along the mechanics. You can read it. You can take it or leave it as you like. But the but there's a mechanics here. And if and I think you got to understand the mechanics and the last time it happened. I'll we'll describe that mechanics in a bit, but yeah. So, anyway, it's up to you. I'm passing it along. You do what you want with it. >> Yeah. Okay. Um, let's go through these these big forces that are at play. >> Okay. So, five big forces just I'm I'm giving a summary. There's a debt cycle in in the in certain times you wipe out the debts. So for example, the new monetary order with World War II began 1945. You pretty much wipe out the debts. You start again and then debt rises relative to incomes. So, there's a debt cycle that that we'll get into, I'm sure, in a minute that I won't digress into because I want to get all five out before we digress into any one of them. But when debt rises relative to your income, debt service payments rise relative to your income, it squeezes out your spending and uh because you have more and more that go to debt service and you have a particular dynamic we'll get into in a minute. But there's a debt cycle. There is a with that debt cycle along the way there's usually a political geopolit a political uh between the left and the right and as that cycle progresses there are greater wealth gaps there are greater values gaps and we start to see populism of the left and the right become almost a warlike situation that threatens order and threatens domestic order and and and so on. So what we're seeing politically now has not happened in our lifetime. It's surprising to people because they haven't seen it before. Okay? But it has happened if you look at the 30s and you look around the world, it's happened repeatedly for basically the same reason. So the first is the debt money economy cycle. The second is this political cycle um uh left right cycle and conflict cycle. The third is a uh the geopolitical world order. Okay. So for example 1945 we have a war and then you have to have a new system. How do comp countries deal with each other? So there's a geopolitical cycle. They begin a new geopolitical cycle. The dominant power leads how that operates. The US was the dominant power. So they had the world's reserve currency. They are uh dominant. And we create the multilateral world order as we know it. The system by which countries interact with each other. And that's a cycle. And we could see that that system is now breaking down. It's certainly changing. Okay. in ways that haven't happened in our lifetime but happen repeatedly through history. Okay. So those three cycles, those three orders which are interwined with each other are going through those those cycles. In addition, if you look at history, droughts, floods and pandemics or acts of nature were more disruptive. They're not necessarily cyclical or maybe they are and I don't see it but anyway there what happens is as droughts war uh uh droughts floods and pandemics have killed more people than wars and have toppled more orders than the other factors combined. That's just a fact. It's measured in the book. And then number five as a force big force throughout history is um man's inventiveness of better ways of doing things particularly new technologies and certainly that's a great force now with with AI and many technologies that we're developing and that's why you know on the cover of the book and and whatever I uh you know I have a a chart that of how it looks to me and um and and that chart sort of looks like I'm drawing it now. Um it looks something like this. M >> um that there are these cycles of um that go up and down that are of economy and um and with that politics the the economy um we we'll talk about them as being expansions and recessions and and with those have been bull markets and bare markets and there have been 12 and a half of those since 1945. Okay. Then you have these periods like the great conflict periods, the war years, the breakdowns of the system and so on. And then you begin a new one in those cycles. Through that all there is the advances of technology. It's not primarily cyclical because knowledge accumulates. It's not like you but it doesn't go through these big cycles. there are faster rates sometimes usually in the booms there are faster rates of discovery um and so on and that is literally kind of how it works right so now when we're going to talk about whatever you want to talk about whether it's dad or politics or geopolitics or anything technology it falls under one of those categories and they're interrelated so for for example now when we think about the debt situation. We also think about um the um AI and will that have an effect on productivity. So, anything we're going to talk about is going to fall under one of those five and they're interrelated and if we understand the patterns of history and then also what makes logical sense um you know that then that's a good conversation. We anyway we'll we'll see how it goes. We'll we'll you you we'll go wherever you want to go, but we will find that it'll be one of those and that they're interdependent and each one of those is progressing almost like a machine that has this logical pattern. That doesn't mean identically. That doesn't mean you should be ignorant of what's happening new and now and think about is that different. You shouldn't be stuck into a rigid notion, but you should have that frame of reference along with whatever new information you want. And it's dead wrong to believe that um oh that's all doesn't matter because what happens when countries run out of money? Okay, we can run out of money. I could I'll describe how we can run out of money or lose the reserve currency status. uh I I right now for example money as we know it is threatened that money has to be a storehold of wealth in other words it's a medium of exchange and a storehold of wealth okay so today what there's very good reason to say is money an effective storehold of wealth okay so what does that mean so you go to history that hey that's happened many times what do you do if You're a government and you face that situation. Well, let's look at what governments did when they faced that situation. So, learn. How can do you be against learning? I really want to learn about this debt cycle thing. I I keep on hearing about debt money, debt money economy, how it works. Can you, this is going to be very difficult for you to do, I'm sure. Can you imagine that I'm an idiot just for a moment uh and try and explain to me how the debt money cycle works? >> Gladly. And it really is simple. >> We'll see. We'll see if you can uh stress test just how simple I am. But yeah, let's give it a crack. >> Okay. The system works like the circulatory system of your body that brings nutrients in the form of buying power by credit. it brings credit and that credit produces debt. However, um when it produces that debt, if you earn enough money because of that credit, it will pay back that credit and you will have a healthy system. If it if it doesn't, it will build up debt and debt service payments like plaque in the arteries of your system that will squeeze out other spending. That is true for you that uh that's true for governments. Okay? The only difference between your finances or a company's finances or the government's finances is the government has the ability to print money and to pay off those debts and it has the ability to take money from others by taxes, but the economics work the same. So, a healthy system and you can watch it almost like a doctor watching an MRI. You can see that happening and I'll take you through it for the US government. I'll explain it. But that is now happening and you see the debt service squeezing out other spending and I'll take you through in a minute. The second thing to know about that is when you run a deficit or have a lot of debt, you have to sell that debt to a buyer. So there's a supply and a demand for debt. one man's debts are another man's assets. And if they believe that that's a good storehold of wealth and they get an adequate real return, they will hold that debt and so on. If they believe that it's not, not only will they not buy the new debt, but they may sell the old debt. And when they sell the old debt, their selling in is greater relative to the buying. And like anything, when the selling is greater relative to the buying, the the price goes down and the interest rate goes up. And that's to ration debt. Okay. So what the central banks do? Okay. they print money and uh to uh and buy the debt like our central banks did. Okay. And they always do that. And so that's part of the mechanics. So um so that that that is the dynamic. So now let's look at the United States government. The United States government uh this year will sell um will spend about $7 trillion and it will take in about $5 trillion. Okay. So, it's spending 40% more than it is taking in. And because it's spent a lot more than it has taken in for a long time, it has a lot of debt. Its debt is about six times what it takes in every year. And it can't really cut back on expenses because some of those expenses are are the things you are commitments like you have to pay off the debt with the interest rate. Um and the debt roll over the debt service is huge. So there's a deficit 7 - 5 = 2 trillion. Okay. 1 trillion of that is interest that keeps building up because you build up the debt. In addition, you have to roll over $9 trillion worth of debt that's expiring. So that's 10 trillion. >> What what does what does expiring mean? >> It's rolling off. It's maturing. >> End of that. So I got to sell I got to I got to sell to to replace that. And then in addition to that uh so we have the one in interest one trillion interest um 9 trillion expiring plus the new two makes 12 trillion that I have to sell. Okay. The buyers have a lot of these debt assets and are not for various reasons not eager to buy that debt. international buyers don't want to buy that debt because look look who are the inter biggest international buyers Chinese and Japanese for example okay we're at at the brink of war the geopolitical situation and anyway they've got too much and everybody's worried about it okay so now um okay I'm going to pause here I could go on at length but you asked me to describe the situation clearly in a way that could be understood. >> I'm I'm starting to get a bit of a grasp on it. In other news, this episode is brought to you by Function. 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That's functionhealth.com/modern wisdom. I mean the obvious question is if you are spending more than you're taking in and you already have these existing obligations that are growing and everybody understands how interest works that it piles on top. This just seems to be an intractable problem. It's a one-way journey towards slamming straight into a wall. And I just don't know what that looks like for a country. What does that mean? I understand what it means for an individual or a company to go bankrupt, but I don't know what it means for a country to not be able to pay its debts. >> What it means by a c a country is for a country, as I say, it's the same as it is for an individual, which means you either don't pay the debt or you exert pressure on others to take the debt even though they don't want it. history has shown this or you print money and you devalue money. So, you know, um um you know um that's the 70s was a good example. I said August 15th, 1971, I'm clerking on the floor of the New York Stock Exchange and they then didn't have enough they issued too many claims on the real money which was gold dead. So, too much claims on that. They couldn't meet those claims. So they said I'm not going to do that and I will print the money and you had the 70s or a good example would be 2020 and 2021 we have COVID and they um they wanted to send out a lot of money. They sent out about twice as much money as there was loss of income the first go round and then they sent down a lot more money and then what how did they get that? The central bank printed money and bought the debt. they monetize the debt. Okay? So that's that's what that's what you do. Okay? Um that's what Japan did. For example, Japan uh um has its big debt and what they did is they forced interest rates down to 3% below US interest rates. The currency depreciated by 4% a year. And so the holder of the bonds lost 7% a year relative to let's say US bonds. and they lost like 65% in relation to gold. And that's why we are now in a position where okay, what is money? What is a storehold of wealth? Okay, so that's the dynamic. Okay, that's the mechanics. >> I have to assume that's a very dangerous position to be in when people start questioning the value of money. very dangerous because also the dollar is the world's reserve currency and the Treasury market is the basis of all markets. It's the foundation. All markets trade off the Treasury market. Credit markets, credit spreads are off the treasury market. Equities are off the treasury market and so on. And the reserve currency is the basis of savings. It's the basis of everything. And also, it's it's it's critical for American power to have the world's reserve currency because when you have the world's reserve currency, it's easier to sell your debt. But that's one of the problems because it's easier to serve your serve your debt uh um sell your debt then you get more in debt because you >> you're incentivized to keep going. Yeah. Exactly. So anyway, that's it. That's where we are on the debt money thing. And then on on the um we can go beyond that but if we're taking the uh internal conflict thing um it's always been the case that um uh capitalism is fantastic for um creating those opportunities and um productivity and so on. Um and at the same time it produces large gaps in productivity uh income and wealth and values. So you can see that the cycle related to that is that there becomes greater conflicts and then in that democracy and whatever um it's no longer the belief in the rules and compromise. It's more like uh who's going to fight for me? Look, just fight for me and win because those other people are problems whether they're left or right. they're the problems. And then there's a question, you know, um, oh, I can't trust the judgment of the Supreme Court because the Supreme Court is political because it's been stacked by that. Am I going to let that stand in the way of losing? And so you then come into an era that is different from the era that I was used to um operating in and believe it was essential. In other words, rule of law. The system is fair. I I come in, we have a a a system. It makes a judgment. We abide by the system. Okay. Now, it's not like that as much. Okay. There is left and right and it's not like a compromise. It's kind of a win at all cost kind of thing. >> Well, now you have the politics. By the way, if I go back in history, I can recount how this happened. Uh, in the 1860s, we started the second industrial revolution. There was great prosperity. There was accumulation of debt. As we turn the century, 1900, and we go into 1907, 1900, uh, we have what was called the gilded age and the robber bars. They were called those rich, equivalent of billionaires now. And there was resentment built up. And then you had the panic. You had a debt problem in 1907, the panic of 1907. And then you have the great conflict that also led to the first world war as there's a rising power challenging it. So anyway, I'm rambling too much, but I just wanted to paint that picture. I'm interested in how much politics are affected by the economic cycle because I think people like me just lay at the feet of culture and human nature and um individual personalities, rhetoric, media. um we lay the political outcomes and the political landscape at the feet of those things, but it seems like you're suggesting that that can be better explained almost directly by just where we're at economically. >> Well, like economics is a big deal for a lot of people. Okay. and and and when you have bad times they want uh you know they want to and then there are values you know what is what is the left value and what is the right value and then you have that um uh that that that conflict um um there are reasons it's always shown I mean in the simplest sense you know that if you have a bad economy there's a high risk that the existing administration will be thrown out of power. I mean, we've seen that in by comparison to big problems. We see that all the time. We know that the political cycle and the economic cycle are tied always, right? It's a good indicator if the economy stinks and you're going into election, it's a good indicator that they'll be thrown out of power. I mean, not perfect, but it is. Okay. Now get bad. Now get bad. Get real bad. Okay. And think about the differences. Now um if you look at the boom that is taking place uh particularly let's say uh very much the related to the unicorns and the inventiveness of new technologies and so on. um roughly 3 million people, which is 1% of the population, are working at those places and and and they're having a boom. Unicorns, there's a boom going on. It's fantastic. If if that if you're in that neighborhood, it's it's fantastic. At the same time, 60% of the population has below a sixth grade reading level. and hasn't had income growth and so on. And increasingly productivity is passing them by. Technology is going to pass them by. You look at the deterioration of homelessness in cities and um I mean you see it if you know almost any major city you see the 50 or hundred million dollar apartment and you see homelessness and and that and then but you take that bottom 60% oh you know I can give you examples of where I live and I drive 15 minutes away and I'm I live in Greenwich, Connecticut. My wife works to help that population, what she call what are called disengaged and disconnected young people. That means um that they um dropped out of high school or failing high school or something like that and are having a problem getting a job. And and so I live in Greenwich, Connecticut. 15 minutes up the road is Bridgeport, Connecticut. Um um Connecticut, which is the second highest per capita income uh state in the country, 22% of the high school students have either dropped out of high school or are failing with CLA grades failing with absentee rates of greater than 25%. So 22% are have either dropped at high school or are failing high school with absentee rates of greater than 25%. They live in neighborhoods where there are drugs, guns, shootings, um, uh, young women having births at 15 years old and so on. There's not a bottom in terms of that. It's created in in in Connecticut $700,000 $700 million a year is spent on incarcerations because of that. Okay, there are these different worlds going on. Anyway, I'm rambling too much, but I'm just saying that's what's going on, right? >> And this disparity, this tension between those two groups leads to uh desire for populism. Is that the mechanism that happens? >> Uh, of course. And I mean it's first of all a there's a tragedy. Productivity like everything works on productivity. If you want income, you're not going to get anywhere by just giving away money. You have to make people productive. So being productive and having income and having um a decent life is very important to the well-being of the society. I know if I was to grow up in that area, if I had to raise my kids and send them to that schools, I'd be a revolutionary >> with the system. But I I doubt that you or anyone on this call practically would say I would put my kids in that environment in those school systems. >> It feels like the system >> how how you solve the I'm not saying there's an easy way to solve this problem, but you never there's two worlds and I'm and that's you know that's that's but that's the bottom of the population. But there's a it's like a disease that when you walk through our cities, you see and that reliably results in the same kind of desires uh culturally, especially politically that then influences the sort of people that are elected, the sort of policies that are seductive and attractive to people. >> Of course, I I mean you look around you and see what you see. What is going on with the mayor race in New York City? >> Yeah. Yeah, it makes complete sense. What's interesting about that one is the the people that are in support. It's very much sort of a luxury beliefs situation where a lot of it's very um aspirational for somebody in a position of high privilege to support someone that largely their policies aren't impacting them. The they're sort of campaigning for somebody that is trying to uplift uh the underclass and the lower class that are struggling. Um, but it seems to be a very cool sort of charitable philanth philanthropic uh position to take. Um, if you're somebody that is of means, even if this isn't someone that's necessarily fighting for you. >> Well, I'm sure each person has their explanation and I think they should explain for themselves. I'm just saying, yeah, no, you know, no It happens, right? I mean, you asked me the question, does it happen? Does it connect it to economics? Does it connect it to conditions? Okay, look around you. Does it happen? Yes, they're connected. >> In other news, you might have heard me say that hold luggage is a scop meant to keep you poor and late. 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So, you can buy your new luggage, try it out for a month. If you don't like it, they'll give you your money back. Right now, you can get a 20% discount. See everything I use and recommend by going to the link in the description below or heading to nomadic.com/modernwisdom. That's nomadic.com/modernwisdom. the internal political force. Why are our policies this way where it is so to do with polarity? It's so to do with this sort of push and pull that seems to go in either direction. >> Well, it's a it's the same as in the 1930s and particularly in Europe, but to some extent in the United States. Um, you know, it's a Plato in his book, The Republic, you know, a couple of thousand years ago, more than that, um, wrote about it. Um, in democracies, people vote for their interest and um, and so what happens is the majority of people want to um, say, "Give me more." Politicians want to give them more. They're willing to get in debt to do these things. Discipline is not, you know, the thing, okay, I'm going to be disciplined. And that's why Plato said in the cycle for democracy or you saw it in the 1930s or you're seeing it now, is you want somebody to get control of this thing and make it work well. And then there's two visions as to who that somebody is. Okay? And so, you know, uh, make the trains run on time was the, you know, in in Italy, which is fascist, and so on. Make the trains run on time, make things work, and then each has a different vision of what that is. And that's why you had fascism and communism in the 30s. Okay. One is okay. Um, I need a strong leader to make a command economy to get everybody to have discipline and do it in a sort of pro business, pro- capitalist way or I needed to redistribute the opportunities and so on and do it in a communist way and therefore you had the fights. Yeah, it's >> I'm I'm surprised like shouldn't all this be obvious? I mean, am I saying anything, you know? I I don't know why. Like, I don't know why you're having me on the interview and why everybody doesn't, you know, am I saying something we can't see? You know what? What? Why we we don't see it? Because we're only looking at this much. You turn on the news and there's today's news and there's not a a seeing the cycle. Okay? It's like the frog in the boiling water idea. You know, you you know, take a frog, you throw him in boiling water, he jumps out. Put him into a pot and have it slowly increase and he'll sit there and boil to death. It's just one increment at a time that is taking place. And here we are. Okay. But draw the lines in that book the changing world order that I did. I go have 500 years of industry. You can see the lines education levels production you could all these things. You can see them. They're in lines. Look at them. Am I saying anything that should be controversial? It's it's there. >> You're right. With without the benefit of perspective, it's very difficult to work out what's going on in a broader context. And if you're only ever looking at a narrow window, you don't get to uh detect patterns because patterns are by design, they need big windows for you to be able to get through. That's right. That that is the main reason that what happens is these cycles take about a lifetime. So these things only come across once in a lifetime. So it's like new. That's a lesson I learned when I was clerking on the floor of the exchange that I in order to understand what was happening I needed to understand what happened in 1933. Okay. So anyway, for those who are interested, the changing world order is explained in my book principles for dealing with the changing world world order. Or you don't even have to buy the book. You can go online for a free video because I'm not trying to sell books. I'm trying to pass along some knowledge and you can see that video. In fact, I give a 4minute clip from it or there's about a 30 35 minute more complete automatic video free. You go on take a look at it, see what you see and then measure up what's happening against what that pattern is because it's like a disease. It goes through stages and you and if you understand what the stages are, you can look at that and you say, is it tracking that? >> Do you think we're post democracy yet? Can anyone really trust the system? Is there breakdowns in belief in politics overall? Is that part of the cycle? >> I think uh I think I should say I believe strongly that we are on the brink of that. Okay. that it could go either way that that but that there's more risk. Imagine the next economic downturn. And I mean, are we not going to have any more economic downturns? I mean, you on average, they've lasted six and a half years. They vary maybe by four years. Um, so I can't tell you, but you're probably going to have a downturn. When you have a downturn, you're going to have people more at each other's throats. I mean, I think there going to be more conflict and people going to get heated up about it and there certainly we're losing the middle. Okay, we're losing the middle in media. We're losing the middle in, you know, everybody's on a campaign and and compromise. How does compromise go? and I'm in Washington. And by the way, um my more recent book, which explains how the debt cycle works, which I gave you in a nutshell before, um but anyway, my most recent book, um I've been drawn down to Washington and I meet with top levels of both sides of the parties and they both agree on both sides all agrees on the on the um on the mechanics. Okay. Is this the mechanics? Does it work? Is that picture there? Everybody agrees. I mean, literally almost everybody agrees with that. Both sides. And I I say, "Well, if I was in your shoes, here's what I would do." And I could explain what I would do. Um, and it it doesn't get rid of the debt, but what you have to do is you have to take a little bit from everything. You have to take a little bit from taxes. You have to take a little bit from um spending. And it isn't easy, but you can reduce the budget deficit from 7% of GDP to about 3% of GDP. And if you do that um with everybody giving something a little bit, you can you can achieve that. And if you do that, then the slide supply demand for bonds improves and interest rates come down and that helps. But if you don't do it now, you're going to have the next big increase in debt. And you know, when you get that debt compounding on itself, um you know, you're beyond hope. And u and that's where we are. And then every and I say, um so I call that process the 3% threepart solution. And I would just say take the threepart t take that pledge. But it's and it's like being on a boat uh headed to rocks and the pe politicians on the boat headed to rocks know that they're going to go to the rocks but they're arguing about how to turn. And I say I don't care even how how you turn. Just everybody uh take it equally from everything. I don't care. But you got to turn. But they argue, am I going to go left or am I going to go right and I don't turn? And I asked them, well, why don't you take the you agree we're going to go head to the rocks? We got this problem. And and the answer is very interesting. The answer is well um I can't do that because um you have to understand I have to take one of two pledges if not both um politically and for my party and that that is I promise you that I will not raise your taxes andor I promise you that I will not cut your benefits. Okay, if you promise that you're not going to raise your taxes and you promise you're not going to raise your b anything anything on the benefits. Okay, that means a debt of you know 7 minus 5 is two plus the other means you got to sell it. Okay, we know where we're going. So politics, >> okay, that I have at least a good understanding of how the current economic situation can impact internal politics. We've got polarity. People feel like they can't give an inch. That's seen as a lack of conviction by their own side. It's seen as a lack of feelalty by the other side. They're an unreliable ally. You have this sort of us and them situation that often comes out of capitalism. good system, lots of problems. That kind of makes sense. When it comes to the external geopolitical order, I don't even I do not understand what the sort of fundamentals of how that system works are. >> Okay, >> that that to me is it the same or is it is are they different? >> An order means what is a system of decision making? So, a global geopolitical world order is how do countries deal with each other? And so the way it works is um when you have a war, the winners determine um how the system is going to work. So in 1945, we had a war. The US came out of it as the dominant power. I can explain all the reasons why, but it um it had uh half of the world's gold. It had uh excuse me 80% of the world's gold. It has half the world's GDP. It had the a dominant military power and so on. And it created the order the post World War II order or system in which it replicated to some extent an attempt to have what the American system is of um let's let's call it they have the United Nations. They get everybody together. It's like a congress or a house. And then they have these multi-inational or multilateral organizations like the IMF, like the World Bank, like the World Health Organization, like uh the World Trade Organization and so on. That was um uh envisioned that those countries would work it out in a way like that. And um that that doesn't work. power um matters. So, nobody's going to the World Trade Organization and saying um these trade deals and now you make a judgment and I'm going to abide by that judgment or nobody's going to the UN to say that and so on. And now you have shifts in relative power. It was not many years ago that the United States could say almost to almost any country um I would like you to do this and everybody got the message because they were afraid not to. But then you have China rising as a comparable power. Okay. You have other countries um uh uh India other countries rising. You know I I it happened in my lifetime so I I know the difference. Uh um I I remember when going to Asia I mean there was no place it was backward. I remember when Europe was backward by comparison. I remember when uh everybody place was backward. Now you go to places and they're modern and they're shiny and they're productive and they're competitive and and so you see the charts in my book. You see these these you know what is your per capita income what is your living standards lots of measure what's your educational level the educational level United States in common education measures uh peace scores and such is uh 34th out of the major developed countries okay and it used to be as a share of world GDP or whatever there's now there's a competition okay and power matters it's Not like you go to the judge or the world court and you solve it in the world court. Okay, so that's how these cycles work and that's where we are in the cycle. This episode is brought to you by Element. Summer hits different when you're actually hydrated. That tired, foggy, muscle crampy feeling most people chalk up to heat or exhaustion, it might be electrolytes and plain water alone won't fix it. Which is why Element is such a game changer. It's a zero sugar electrolyte drink mixed with sodium, potassium, and magnesium in the exact ratio your body needs. 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So, I'm interested in how China's ascendancy, what we're seeing at the moment, how that relates to sort of the first two orders at the moment, how much that is born out of that, how much that is influenced by the first two that we've seen because you mentioned it earlier on. seems to be the primary uh geopolitical tension that we have at the moment globally between the US and China. Um are there any comparable situations from history like this? >> Yes. And and let me let me just explain it. Um, we now have China as a roughly comparable power and we had a dynamic. So I'll connect it to the first the economic and I'll connect it to the second which is the political and okay we um so on and connected to the first China um takes off and it becomes very competitive in the world because it was for various reasons they had communism. uh Mao dies in 1976 and they changed policies in 1978 and as a result they go to policies that made them much more competitive in the world and so they produce things inexpensively. Americans buy that with borrowed money. The Chinese um think, "Oh, that's great. I'm selling stuff and I'm accumulating my saving in the form of these bonds and the Americans think, okay, that's great. I'm buying this good expensive stuff and I feel that that's good, but I'm also getting deeper in debt and they don't pay too much attention to that. And then also you lose the middle class because we used to be manufacturing. Um, in other words, the manufacturer people worked on an assembly line. They had a a house, two cars, and a boat. And there was manufacturing in there. And a combination of international competitiveness, particularly China, but also technology has wiped that out. We don't we're not manufacturing. So, we get deeper into debt. And then um and and we lose the manufacturing. We produce our polarity and we're coming closer to a war, a conflict and therefore we cannot have dependencies. Okay? We can't have this dynamic of which we keep buying their stuff on on borrowed money because the others don't want to lend to us. and and all and and you can't keep not producing because you're losing the middle class who's angry at you and wants to make changes and also if you keep b needing to buy the stuff from the Chinese or others out there and you get into a conflict you may not get stuff that you need. So all of that has to come to an end. Has to at least be significantly reduced or just okay and that's where we are. So they're interdependent, right? What about the role of acts of nature? You know, I I I can't work out whether given how finely tuned our world is, acts of nature matter more or less now because you'd think that we might be more robust because we've got air conditioning and buildings and and technology to protect us. But on the flip side, we're so finely tuned that a single stuck ship in the Suez Canal can cause a global supply chain issue that reverberates for months and months and time after. So, I'm trying to work out Yeah. How much do act of nature matter now in the modern world? Um I um I don't claim to be an expert on that, but I will tell you what I think um objective studies um do me. Um the estimated costs of um either the damage and that future damage of uh climate and I'm not sure that how how much this is cyclical and how much of this is man-made. um just read the studies but anyway I you know people argue about that but anyway whatever it is um it is going like this in terms of let's that let's say the temperature level and the consequences in terms of damage is estimated cost is about $8 trillion a year either in one of three ways or it's usually a mix of those either in the um in the cost of trying to prevent climate change. So you have to invest in it and do those things and that's expensive or um preventing climate change meaning maybe you build the seaw walls or you have to adapt it's called adaptation maybe you have to move because it becomes too tolerable I don't know or the damage itself Los Angeles burning or whatever is estimated something like 8 trillion a year in a world economy that's about 100 trillion. So it's a one way or another it appears to be a very expensive thing that's certainly going to require adaptations and and but I can't tell you um it's going to get worse. the the four the first four of these are going to get worse probably. Okay, the debt situation as we get deeper into debt and and these things happen um is probably going to get worse. I mean, you just did rejections the internal order and disorder particularly if there's more disruption, but anyway, it's not like we're going to probably quickly go back to harmony. I I I think I think if there was something we need we need a strong middle. I can get into that in a middle minute, but I think you need a strong middle uh to uh bring to stop the fighting between it and to do the difficult things that need to be done in order to deal with our challenges. But anyway, the the political is probably not good. the geopolitical is is certainly risky and it is the case that the acts of nature are probably going to get worse and they're related to each other. Um uh and by the way I I I I'm because I'm a practical guy. I don't approach it either as an optimist or a pessimist. I have to just be as accurate as I possibly can to bet well. And then uh and then there's technology. And technology um is a two-edged sword. Um um it'll probably raise productivity a huge amount, but it could be used for wars as well as improvements. And it certainly is going to be disruptive to employment. and and how are we going to deal with um that? I mean, in other words, okay, you still have the question of how you divide the pie and um you know, there's probably going to be a lot of fighting over that question. >> What's your perspective on the impact that AI is going to have over the next few years? Um, I think there's the creation of AEI and it's going to be amazing and it provides enormous enormous benefits. It's it's really unique. I think it's the best technology ever, different technologies because it's thinking that applies to everything. So if you find better thinking applying to medicine and everything uh building buildings doing anything it it has that broad application and it's going to be a major um um now um I don't think the actual applications to create the differences are going to happen as fast as they are as as the potential for them to happen is in other words I think the developments will happen but the issue of using it well incorporating it into our lives incorporating it into the companies and so on so that it is producing its benefits I think is going to be a lot slower than ideally it could be and as I say it could be used for wars Um and also it certainly will create great disruptions. I don't know that we'll be able to handle those disruptions how we how we do it. And I think it's very difficult to even know the applications uh the the imp implications and applications of of the new technology. It's like um when the digital age came and we have internet and computerization um you know now people will say you have a higher suicide rate and mental illness for kids who are on phones. >> Mhm. Now I would have thought that um that would have been a fantastic equalizer of education. You know all around the world you can be educated on this and I can't tell you one way or another other than I'm not smart enough to tell the implications of these things. It's a great productivity tool. This is a great productivity tool. Okay. what what has been its implications? Okay, it's many ways beneficial, many ways people would say detrimental. >> I think the most important thing over time is how people deal with each other. In other words, can we solve our problems together? It's it's it's you know it's karma or you know if you don't do it together you're going to be at each other's throats and and you won't solve the problems. He said >> figure, okay, how do we get to the common good of whatever it is? How do we commonly deal with the debt problem or any of these things? You know, how do we not fight? How do we solve problems well together? Um I I think that's so it's a human nature question. It's not a technology question. >> You said you're not sure how well we'll be able to uh handle the disruption. of AI coming in. What What does that mean? What does what does not handling the disruption of AI uh what does doing that badly or not handling it well? What does that mean? Um, it will have implications for employment. Um, um, it'll radically enable and and just as it's doing now, radically enable and enrich many people. And it will replace many people. and it will be used for productivity and discovering of medical treatments and the like and it will be used for wars. Um so it's it it's certainly going to be very disruptive in in beneficial and detrimental ways. And and just like all technologies over a period of time, um but this one more so, you know, how it's used and and how the implications of it are dealt with will be of paramount importance. Before we continue, if your workouts feel flat, your recovery is slow, or you've just been feeling off, it might not be your training plan or your diet. It might be something a bit more boring like zinc. And while supplements like Tonat Ali can help, zinc quietly plays a huge role in testosterone production, strength, recovery, and energy. And most people are chronically low on it, which is why I'm such a huge fan of Momenus's zinc. It supports testosterone, boosts vitality, and helps keep everything running like it should. Best of all, it's NSF certified for sport, which means it's been independently tested and approved for purity, safety, and zero shady ingredients. So, even Olympic athletes can use it. and and you too. And if you're still unsure, Momenus offers a 30-day money back guarantee, so you can buy it and try it for 29 days. If you don't love it, they'll just give you your money back. Plus, they ship internationally. Right now, you can get 35% off your first subscription and that 30-day money back guarantee by going to the link in the description below or heading to live momentous.com/modernwisdom using the code modernwisdom at checkout. That's live ent.com/modern wisdom and modern wisdom at checkout. I'm interested in the sort of halves and have nots dynamic that you identified earlier on. Um how that is played into economically. It influences what happens in terms of internal politics, increases polarization, increases tension, inc increases the desire for sort of populism. I have to assume that if AI comes in that is you already mentioned this whatever 1% of the population are working at a bunch of companies and of that 1% some will be in companies that are in AI that are maybe going to have an even more vertical hockey stick over the next decade or so. Surely that's just going to allow gains to acrue to an even smaller group of people. It's going to displace more people from work. Uh I think uh maybe Microsoft just released a huge 40page white paper looking at the jobs that are most likely to be displaced and the ones that are least likely to be displaced. And um it's like a it's actually quite an interesting cohort when you look at it. A lot of very working like um uh lumbering lumberjacks uh logging um boat captains. None of those they they were the lowest down on the list. middle management, sports broadcasters, historians, analysts, middle level, um, uh, legal sort of bods, all that sort of stuff, logistics, drivers. Um, so it really does sort of cross the spectrum. It doesn't seem like anybody's particularly safe. It doesn't look like anyone at any any area is going to be protected from this. So yeah, I'm just interested in what you what you see in terms of this increasing polarity, halves, have nots, and um yeah, what that what that's going to mean for human nature and human psychology and and levels of well-being. um by studying history and um studying human nature. I I really do I'll I'll touch on that in a minute. Um I think that um it's what I've been saying in terms of this conflict and how you work it out. And then there's also I think people have some need to be productive and I think the society needs to for people to be productive. Maybe it's theoretically possible that you can just receive your check but you still have to have somebody determining do you get a check and what do you do with it? And >> you mean like a UBI type scenario? All I know, all I know is that it's going to be very disruptive. And the question is, how are we going to deal with it? Will we deal with it wisely in a way that most people agree and don't get angry over? And you know um uh so that's kind of all I know. You know >> what's your prediction? How wise how wisely do you think we're going to navigate this? >> Sorry. >> How wisely do you think we're going to navigate this? What's your >> I don't think we're going to navigate it wisely. I think we have a human nature problem. uh that's why I say I I believe I believe in uh whether we call it karma or spirituality or the nature of can we make the collective good or does the individual fighting for self-interest get such that the collective is bad because everybody's fighting for self-interest and they don't smartly work things out. You know, what goes around comes around. Um do unto others as you would have them do unto yourself. Throughout history, peace work it out um has ebbed and flowed mostly. You get it during you get peace in that during prosperous times. But when you get um a lack of prosperity or whatever, you have the sort of horrendous brutality and wars, you know, that we see in varying places. Now, >> what's more dangerous, these cycles or kinetic wars themselves? Um, I'm I'm I'm not sure. I think the cycles the cycles are just a description of cause effect relationships and the actions in their worst part which is you know that part of the cycle where you have where you're getting rid of the debts and you're fighting for who has power and all of that. But and then you've you get here 1945, you are you've had the war, you've gotten rid of the debts, you now you have a new power and then you begin it again. That um is the way it works and then those periods are very dangerous of course. Does that >> Yes. Is it which is worse? One is the is a description of the process. The other is a description of the bad part of the cycle. >> Understood. Do do you think that our current stage in the cycle explains many most all of the conflicts that we're seeing at the moment? >> Um by and large it is what's going on. Does it explain everything in all ways? Exactly. Uh no. Um and um I think this is one of the big things. It's almost people trying to pay a lot of attention to the what's happening over the short term and paying too much attention to exactly that they miss the bigger picture. So nothing happens exactly and do pay attention to the bigger cycle because the bigger cycle matters and you might overlook the bigger cycle because you're looking at that small thing and you're asking does it happen exactly? >> Mhm. Do you think what do you think most people miss about the mechanics of how countries fall apart? Is it slow decay? Is it sudden shock? I think they just are um they just are not reading the story. They don't they haven't experienced it. They don't study it. They don't see the patterns. It's like it's it's like a person growing from a kid to get older, get married, they go through their life cycle, get older and die. and they don't pay any attention to the life cycle and they don't pay any attention to the fact that hey this has happened over and over and over again. How does that go? Like you know, okay, do you know where you are in your life cycle? Do you know? Do you know what's coming? Okay. Do you know where you are in your life cycle? Are you putting it or are you just paying attention? You get up, you deal with your sit, your job, your kids, your your circumstances and so on, but you haven't stepped back and say, "Okay, I'm here in my life cycle and I'm okay." But that life cycle's happened over and over. Okay, I I'm 76 years old. I know where I am in my life cycle. Okay. And do you know you almost can um know to almost to the detail. Okay. Your hair isn't gray yet. Okay. Okay. You maybe haven't gotten reading glasses yet. Okay. There are markers. Do you pay attention to that? Okay. And your life cycle and the next generation and so on. uh most people don't pay too much attention. Do you know how the life cycle goes? Do you know that you know it's a fact in terms of the life cycle? Um happiness tracks the life cycle. When you you're in school on one of the happiest periods is you get out of school, you're immediately out of school and you have your friends and you're having a great time and you have great aspirations and everything's great. So it's plotted how people are asked what is your happiness level and they find that that's a high point. Uh the worst part of the life cycle is kind of like 45 to 55. Okay. Um because there's work life balance. Um you're trying to juggle things. Maybe the relationship that you thought was going to be wonderful with your spouse isn't as wonderful. the seven-year edge or something. Then you get into uh also I this it's not as easy as you expected to be on top of the world and and so on and then you that that's proven I mean that's that that's survey it's result then you go up and then you you get past that and the happiest point of the life interestingly is like 55 to 70 70ish in that vicinity because you're free of these kinds of things. Interesting. I never would have thought that because I would have figured, okay, you're going to be old. How could that be as great and then you're coming to your end, but anyway, it is for various reasons because you don't have to take care of your kids anymore. You don't have to do that. You're free. You're not trying to prove yourself anymore. Anyway, I'm I'm getting off the subject, but I'm just trying to convey the notion that does anybody stand back and saying, how do these patterns go for good reasons? They go and they repeat that way. and not exactly. So if somebody was to say um well wait a second you know you're living longer today because of the new technologies that's true but it's still the life cycle by and large. Okay. So anyway that's how it looks to me. It's a nice uh or a surprising realization that most people don't have an understanding. I guess it's it's funny that these things the cycles seem to happen around about the same length of time that people are alive for. So unless you have a particularly unusually long life cycle, uh you don't get to see them twice. >> So you have to do the studying of history because if you just go on personal experience, you have only got to see it once. And what is the the sense that every generation has that we are special from the one that came before? I don't need to listen to granddad. I don't need to listen to that story he was telling me about what happened in 1945. No, no, no. This time's different. >> But but yet through history, all monetary orders have broken down. I'm stating a fact. Money has broken down. All political systems have broken down. United States is is long and we've just had one civil war. We could have another civil war, but anyway, but watch them. They break down and then they come to a new system and all geopolitical systems world order have broken down. Last one broke down and we began a new one in 1945. Okay? It's like life cycles. Okay? I mean, you can ignore all that. What do you think that you're right about but might be early on? Have you gotten uh intuition about something that as yet you can't necessarily prove but you think I reliably this is a direction I think I'm going in. um the timing, the exact um certain actions will be taken, you know, where exactly when, you know, when you step back like I think um when when is the US going to have its debt problem? I think um three years from now, give or take and I also don't know that I'm absolutely right. And I but it but but maybe it's five years from now. I do I I am pretty confident that what we're seeing in terms of that squeezing out data debt service squeezing out like what are you going to do five minus 7. Okay. But you can't that that seven in spending, you can't pretty much cut because if you look at the particulars of it, well, what are you going to do? You're going to cut your what are you going to do? How you going to cut those things? Everybody's fighting over it and they look pretty fixed and okay and and that that that's going to add up. So, it's it looks like it's going to go like this. Anyway, I don't want to overmbellish on that, but it looks like so I'm like a doctor and and you know looking at the economy and like a patient and I could say I can't tell you exactly when you're going to have a heart attack. I can tell you this plaque is building up and it's squeezing out spending. Um, and unless you do this, this, and this and change your ways, that's going to continue. And at some point, it's very dangerous. Now, can't tell you exactly when you're going to have a heart attack or whatever, but and the only thing I'm suggesting is I don't know, read my book or to do it and decide does that make sense or not. And it's up to you to take care of yourself. I you know, I'm just doing my part and trying to pass it along. And maybe I'm right, maybe I'm wrong, but you can consider it. And there we are. >> Well, I appreciate the time that you've put in to do it. Ray Dalio, ladies and gentlemen, where should people go? they want to dig into more of the stuff that you've spoken about. Where's the best place to head? >> Well, like I say, I I think to really understand that either of my books, Changing World Order or How Countries Go Broke the Big Cycle. Either of those would be good. Or you can there are the free videos. Um there's a 40minut changing the world order, I think, or 35, I'm not sure, YouTube video you can watch. It's free. And then there's a fourminute clip of it. Um, and that'll probably give you the cycle. But anyway, you've heard quite a bit of it here. And um, and um, and then the it deals more now with what to do about it. The books begin principles for dealing with. So, not only does it explain it, but more importantly, what do you do with it? And a lot of this is um not even to bet on it, but to diversify or protect yourself against it. In other words, how do I just be like an insurance policy? If I have bad times and good times, how do I take a certain amount of my money or and whatever and protect myself against it? These are things we didn't get into in our talk about what you should do, what you could think about doing. They're in the books. If you want that, you know, I suggest you read it. Uh I'm I'm passing it along to help. I assure you I'm not doing it for the money of selling my books. >> Right. I appreciate you. Until next time. >> Thank you for helping me to pass this along. Congratulations, you made it to the end of the episode. And if you want more, well, why don't you press right here? Come on.