Drawing on decades of market experience and a long-term view of history, Ray Dalio examines the economic and geopolitical cycles shaping this moment, the risks he’s watching most closely, and what history suggests about what may come next. 
Ray Dalio, Founder, Bridgewater Associates 

In conversation with: Kamal Ahmed, Executive Editorial Director, Fortune U.K. and Europe

Turning Points

Conferences

Thanks so much for joining us here, Ray. Now, as, as Jeremy said, you've, you've been an investor, you've been through a lot of cycles, Ray, uh, 60 years, if, uh, if I'm not wrong. Uh, so you'll have seen a lot of crises, you'll have had to think about the long term. Is it important that we step back? You have written the book The Changing World Order, that when we see the drama of this week, as I said, I've been coming to Davos for 16 years, the drama of this week, the tension between European politics and American politics. Is this the most important time to actually step back and consider those broader forces? I think we have to step back and think of broader forces. One of the problems that repeatedly happens is everybody pays so much attention to each news item, and then it's it's so startling the US with Uh, uh, its international relations, Greenland and so on, and this is so startling. Minneapolis is so startling and so on, and they don't look back at the arc, even a year is a small time in that arc of history. I know that um the reason I anticipated the 2008 financial crisis or the European crisis from 2010 to 202015 is because I studied the 1930s. And so maybe I can just give you a sense of that. I, because I wanted to study the rises and declines of reserve currencies. I studied the last 500 years of history because they, they take a while and um and what I learned through that exercise is the same thing happens over and over again and it's like a movie for me, it's like watching the same movie happen. So what does that movie look like? um. In brief, there are 5 big forces that interact and tend to uh evolve in a cycle pertaining particularly let's say to most importantly perhaps as a leadoff is the money debt cycle, OK. Uh, so, uh, and we start in 1945, OK. 1945 is the new order and OK and so there is a um a money, debt. Economic market cycle and what happens is very briefly is that when debts and debt service rise faster than incomes. The debt service payments squeeze out spending until you can't do that anymore. And for governments, when that debt crisis happens, there's a question of um do you print money or do you let debt crisises happen and since 1971 when we broke the link with the dollar, we choose to print money with a fiat monetary system. So there's a monetary order. And that also has to do with the supply and the demand for debt and that, so we think what is money, what is the storeholder wealth, central banks hold it and what is it like? So uh we are now dealing with the breakdown of the monetary order. OK, we'll get into this, but I'm I'm sure, but you have um how central banks are changing the reserves, why they are buying gold, why you are seeing the change in the complexion. So that monetary order and throughout history, monetary orders have always broken down. Related to this economic cycle is the domestic political cycle there because money and economic conditions affects politics. And so you, um, throughout history, you've had these cycles where you can come and have irreconcilable differences when there's great wealth and values gaps, then there is great conflict about what should be done and democracy becomes threatened because it's now populous at each side and it's winnable at all costs and there's not the same belief in the system working. For them and it's almost perceived as everybody's on one side or another and I, and it's a corrupt system and so that's what we're seeing operate now across countries and the third influence is the change in the world order. How was the world order and at the end of World War II because the United States was the dominant power, it brought in the idea of a new type of world order, almost representing an analogous version of the American representative. System, in other words, a multilateral world order where there's a United Nations and there's a World Court and there's a World Trade Organization and a World Health Organization and these multilaterals where there's representation, OK, and that didn't exist before. And then we, it's almost a naive system when you have um the fact that the most power, every system, every representative legal system has to have enforcement mechanisms. So what happens when the leading power doesn't want to abide by. By the vote. Do you really expect that there's going to be a United Nations vote or a world court that's going to resolve these things? So you're seeing a breakdown of the world order and going from a multilateral system to a unilateral system. So people in their minds with with Uh, sympathy for a rules-based system. OK, who makes the rules? Who enforces the rules? How does that work? OK, that's, that's a question of our time. Number 4 influence is acts of nature. Droughts, floods, and pandemics through history have killed more people and toppled more orders than before. And number 5 throughout history is man's inventiveness of new technologies and certainly we're having the greatest, one of the greatest inventions, if not the greatest invention when human intelligence is working with artificial intelligence and so on, and what that means. So those five forces you can. operate in certain cycles and everything that we talk about has to be related to the interactions and that cycle. So there's not a question you can ask or a topic that we can't that is not interdependent, but there is this broader cycle that we're in, so we have to be realistic about those things. When The Prime Minister of Canada, Mark Carney, is saying this is a rupture, not a transition, when President Macron of France is saying that the rule book, rulebook has been ripped up. How do businesses, given your outline of the five rules, how do they respond, because if it is a rupture, and we're on this journey, the global rules-based order, which businesses often have to abide by or are part of, how should they respond now, given the statements of people like Carney and Macron? I, I, I think the particular question is, uh, ask yourself who makes the rules, who enforces the rules? And how are you going to deal with that? When there's different countries, you would say there's focus on America then. I think each is focused on themselves and we're increasingly dealing with, we're not so sure that the rules will be the important governor and how will that rule-based system, how, what happens when jurisdictions and enforceability are not respected. OK, so this is happening um within the United States. What is law? What is, but power matters more. So you're dealing with questions of do you have the National Guard, do you have the military, do you have the police, and who's on my side, but you're also having that internationally. So if you have a Greenland question or you have um a question, uh Venezuelan question and so on, OK, who said You can't be naive, OK? So if you're relying on the law in the same way, you must be practical in thinking about that. So that's why people are going to their jurisdictions. They're going to different jurisdictions. Within the United States, they're going to different jurisdictions, different states. Within the world, they're going to different places, which is where they are in like-minded and that they're in support of each other because that's what is giving them the assurance, not the rule-based system. Let's not be naive, OK, and say, oh, we're breaking the rule-based system. It's gone. It's going, it isn't that that could strike fear though into leadership groups, into boards, into CEOs that they're going to have to navigate this world which is going to be much more nationally shored, I think. What always scares me is the lack of realism. When you say that can scare you. Or I, I No, I think that they have to deal with these things, right? They have to deal with jurisdiction questions. They have to deal with law prevail and internationally. Everybody is having to deal with that question. Will law prevail? Ray Dalio, I know you're very tight for time, so we'll have to stop there, but thank you so much for giving us some historical perspective. Thank you.