60 years of global macro investing.
Congratulations. Thank you.
Yeah. Bridgewater just celebrated its 50th year and I just 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 tell you a story.
When I was between 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 promises to allow you to turn in those dollars for gold, or we're not going to stick to them.
That wasn't his wording exactly.
But money as we knew it, which was gold and the money as we now know it, which is fiat money, was like checks, 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 it 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 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 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 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 make a lot of money and do very well in anticipating the 2008 financial crisis, and then to also the European debt crisis from 2010 to 2015.
So I knew that things may have happened before.
So I then needed to study.
So there are things that are going on now that happen in our lifetime before.
And I figured that I needed to study that.
What causes is 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 The same things happen over and over again for the same reasons.
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, focused in and keeping it quiet.
So that's why I studied that 500 year.
And that's why I wrote the 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 on YouTube, Changing World Order.
It's free. You can listen to it.
So anyway, that's how I came about all this 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, Ray?
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. It's like a life cycle.
It's like a disease or a process.
process um and the only thing i could tell you is you're wrong if you believe that um there were in times in the past that were more similar to what you're used to i mean i think you you've got to know that now right i mean um 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 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 you get sick you die or something there's this cycle that it goes over and over again and these
things but anyway you you could take it or leave it.
It's up to you. And so I can tell you, I never would have understood what happened in 2008.
For example, 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 to do was, quantitative easing, it's the first time it happened.
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 saying.
saying. There are five major forces that repeat over and over again and interact.
And if you like, I'll describe them.
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 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 happened today?
Okay. Debt. Okay. I can take you through the debt numbers.
I'm sure we'll discuss the government debt numbers, but I mean, just 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 in the mechanics.
I described that in my recent books.
I just want to pass along the mechanics.
You could read it, you can take it or leave it as you like, but there's a mechanics here.
And I think you've 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 okay um let's go through these these big forces that are at play okay so five big forces just i'm giving a summary there's a debt cycle cycle.
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 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 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.
With that debt cycle along the way, there's usually a political 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 war -like situation situation that threatens order and threatens domestic order 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.
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 economy cycle.
The second is this political cycle, left -right cycle and conflict cycle.
The third is the geopolitical world order, okay?
So, for example, 1945, we have a war, and then you have to have a new system, how do countries deal with each other?
So, there's a geopolitical cycle.
They begin a new geopolitical cycle.
The dominant power superpower leads how that operates the u .s was the dominant power so they had the world's reserve currency they are a 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 happened repeatedly through history.
Okay, so those three cycles, those three orders, which are intertwined with each other, are going through 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, what happens is as 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 man's inventiveness of better ways of doing things, particularly new technologies.
And certainly that's a great force now with AI and many technologies that we're developing.
And that's why, you know, on the cover of the book and whatever, I have a chart of how it looks to me, and that chart sort of looks like I'm drawing it now.
um it looks something like this um that there are these cycles of um that go up and down that are of the economy and uh and with that politics the the economy um we'll talk about them as being expansions and recessions and and with those have been bull markets and bear 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.
knowledge. It's not primarily cyclical because knowledge accumulates.
But it doesn't go through these big cycles.
There are faster rates sometimes.
Usually in the booms, there are faster rates of discovery 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 or geopolitics, or anything, technology, and it falls under one of those categories, and they're interrelated.
So for example, now when we think about the debt situation, we also think about the 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, you know, then that's a good conversation.
Anyway, we'll see how it goes.
We'll go wherever you want to go.
But we will find that it'll be one of those and that they're interdependence 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, oh, that's all doesn't matter.
Because what happens when countries run out of money?
Okay. We can run out of money.
I'll describe how we can run out of money or lose the reserve currency status.
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, 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 you be against learning i really want to learn about this debt cycle thing i keep on hearing about debt money debt debt money economy, how it works?
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, 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 stress test just how simple I am, but 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, 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 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'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 them.
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 U .S. 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 it in a minute.
The second thing to know about that is when you run a deficit or didn't have a lot of a 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 is greater relative to the buying.
And like anything, when the selling is greater relative to the buying, 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 So now let's look at the United States government.
The United States government this year 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 are commitments like you have to pay off the debt with the interest rate.
And the debt rollover, the debt service is huge.
So there's a deficit, seven minus five equals two trillion.
Okay. One 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 does expiring mean?
It's rolling off. It's maturing.
So I got to sell to replace that.
And then in addition to that, that, so we have the one interest, one trillion interest, nine 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.
debt. International buyers don't want to buy that debt because, look, who are the biggest international buyers?
Chinese and Japanese, for example.
Okay. We're at the brink of war, the geopolitical situation.
And anyway, they've got too much and everybody's worried about it.
Okay. So now, okay, I'm going to pause here.
I could go on at length, but you asked me to to describe the situation clearly in a way that could be understood.
Does that help you?
I'm starting to get a bit of a grasp on it.
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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 toward 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 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 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 issued too many claims on the real money, which was gold then, 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 wanted to send out a lot lot of money.
They sent out about twice as much money as there was loss of income the first go around, and then they sent down a lot more money.
And then how did they get that?
The central bank printed money and bought the debt.
They monetized the debt.
Okay, so that's what you do, okay?
That's what Japan did.
For example, Japan has its big debt, and what they did is they forced interest rates down to 3 % below U .S. 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, U .S. bonds, and they lost like 65 % in relation to gold.
And that's why we are now in a position where, okay, okay, what is money?
What is the 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.
The reserve currency is the basis of savings.
It's the basis of everything.
Also, 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 you serve your debt uh sell your debt and then you get more in debt because 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 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 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 operating in and believe it was essential.
In other words, rule of law, the system is fair.
I come in, we have a system, it makes a judgment, arrangement 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 costs kind of thing but now you have the politics by the way if i go back in history i can recount how this happened 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, we have what was called the Gilded Age and the robber barons, 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 individual personalities, rhetoric, media.
media, 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, 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, their 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 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 stings 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.
OK, now get back. Now get back.
Get real bad. OK, and think about the differences now.
Now, if you look at the boom that is taking place, particularly, let's say, very much 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 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, I mean, you see it.
You know, almost any major city, you see the $50 or $100 million apartment apartment and you see homelessness and that, but you take that bottom 60%.
I can give you examples of where I live and I drive 15 minutes away and I live in Greenwich, Connecticut.
My wife works to help that population, 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 they're 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 state in the country, 22 % of the high school students have either dropped out of high school or are failing with absentee rates of greater than 25%.
So 22 % have either dropped out of high school or are failing high school with absentee rates of greater than 25%.
They live in neighborhoods where there are drugs, guns, shootings, young women having births at 15 years old, and so on.
There's not a bottom in terms of that.
It's created. In Connecticut, $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 desire for populism.
Is that the mechanism that happens?
Of course. And I mean, first of all, 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.
productive. So being productive and having income and having 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 sell them to that schools, I'd be a revolutionary.
with the system i could not i i doubt that you or anyone on this call practically would say i would put my kids in the that environment in those school systems if it feels like solve i'm not saying there's an easy way to solve this problem but you never there's two worlds and And that's the bottom of the population.
But it's like a disease that when you walk through our cities, you see.
And that reliably results in the same kind of desires 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 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 someone that largely their policies aren't impacting them.
They're sort of campaigning for somebody that is trying to uplift the underclass and the lower class that is struggling, but it seems to be a very cool sort of charitable philanthropic position to take 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 shit.
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.
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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 the same as in the 1930s, and particularly in europe but to some extent in the united states um you know it's a play -doh in his book the republic you know a couple thousand years ago more than that um wrote about it um um in democracies people vote for their interest interest. And so what happens is the majority of people want to say, give me more.
Politicians want to give them more.
They're willing to get in debt to do these things.
Discipline is not the thing.
Okay, we're going to be disciplined.
And that's why Plato said in the cycle for of 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, make the trains run on time was the, you know, in Italy, which is fascist. And so make the trains run on time, make things work.
And then each has a a different vision of what that is.
And that's why you had fascism and communism in the 30s.
Okay. One is, okay, 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 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 Why everybody doesn't, you know, am I saying something we can't see?
You know 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 seeing the cycle.
Okay. It's like the frog in the boiling water idea, you know, you, you know, take a frog, you you throw them in boiling water, he jumps out, put them 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 these things.
You can see them. They're in lines.
Look at them. Am I saying anything that should be controversial?
It's there. You're right.
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 the narrow window, you don't get to detect patterns, because patterns are, by design, they need big windows for you to be able to get through.
That's right. 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 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 book Principles for Dealing with the Changing 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 four minute clip from it, or there's about a 30, 35 minute more complete automatic video free.
You go on, take a look at 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 if you understand what the stages are, you can look at that and 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 is that part of the cycle?
I think, 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 economic downturns.
I mean, on average, they've lasted six and a half years.
They vary maybe by four years.
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 are going to be more conflict and people are going to get heated up about it.
And there's certainly, we're losing the middle.
Okay. We're losing the middle in media.
We're losing the the middle in, you know, everybody's on a campaign and, and compromise.
How does compromise go?
And I'm in Washington.
I'm 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 on the mechanics okay is this a mechanics does it work is that picture there everybody agrees I mean literally almost everybody agrees with that both sides and I say well if I was in your shoes here's what I would do and I could explain what I would do it doesn't get rid of the debt but 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 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 with everybody giving something a little bit, you can achieve that.
And if you do that, then the 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 when you get debt compounding on itself, you're beyond hope.
And that's where we are.
And I say, so I call that process the 3 % three -part solution.
And I would just say, take the three -part, take that pledge.
And it's like being on a boat headed to rocks.
rocks, and the 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 you turn, just everybody 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 ask them, well why don't you take the you agree we're going to go ahead to the rocks we got this problem and the answer is very interesting the answer is well I can't do that because you have to understand I have to take one of two pledges if not both politically and for my party and that is I promise you that I will not raise your taxes taxes and, or 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 benefit, anything on the benefits.
Okay. That means a debt of, you know, seven minus five is two plus the other beat.
you got to sell it.
Okay. We know where we're going.
So politics. Okay. 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 fealty 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 when you have a war, the winners determine how the system's 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 had half of the world's gold.
It had, excuse me, 80 % of the world's gold.
It has had the world's GDP.
It had 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, 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 multinational or multilateral organizations like the IMF, like the World Bank, like the World Health Organization, like the World Trade Organization, and so on, that was envisioned that those countries would work it out in a way like that.
And that doesn't work.
Power matters. So nobody's going to the World Trade Organization and saying, 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, 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, India, other countries rising.
You know, it happened in my lifetime.
So I know the difference.
I remember when going to Asia, I mean, there was no place.
It was backward. I remember when Europe was backward by comparison.
And I remember when everybody's 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 so you see the charts in my book, you see these, 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, PISA scores and such is 34th out of the major developed countries, okay?
And it used to be as a share of world GDP or whatever.
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 work.
And that's where we are in the cycle.
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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 it seems to be the primary uh geopolitical tension that we have at the moment globally between the u .s and china um are there any comparable situations from history like this 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 i'm connected to the first china um takes off and And it becomes very competitive in the world because it was for various reasons.
They had communists.
Mao dies in 1976 and they change 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 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.
In other words, the manufacturer, people worked on an assembly line.
They had 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 are 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 which we keep buying their stuff on borrowed money because the others don't want to lend to us 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 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 active nature?
You know, I can't work out whether given how finely tuned 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 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 active nature matter now in the modern world um i i don't claim to be an expert on that but i will tell you what i think um objective studies or do mean um the estimated costs of either the damage and that future damage of climate, and I'm not sure how much this is cyclical and how much of this is man -made.
I'm just reading the studies, but anyway, people argue about that.
But anyway, whatever it is, it is going like this in terms of, let's say, the temperature level and the consequences in terms of damage.
The 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 cost of trying to prevent climate change.
So you have to invest in it and do those things, and that's expensive.
or preventing climate change, meaning maybe you build the seawalls 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 one way or another, it appears to be a very expensive thing that's certainly going to require adaptations.
But I can't tell you.
It's going to get worse.
the four, the first four of these are going to get worse probably.
Okay. The debt situation, as we get deeper into debt and these things happen, um, it's probably going to get worse.
I mean, I, you just did projections, 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 think if there was something we need, we need a strong middle.
I can get into that in a minute, but I think you need a strong middle 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 political is probably not good.
The geopolitical 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.
By the way, 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 there's technology, and technology is a two -edged sword. It'll probably raise productivity a huge amount, but it can be used for wars as well as improvements, and it certainly is going to be disruptive to employment.
And how are we going to deal with that?
I mean, in other words, okay, you still have the question of how you divide the pie and 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 a i 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, building buildings, doing anything, 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 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.
And also, it certainly will create great disruptions.
I don't know that we'll be able to handle those disruptions how we do it.
And I think it's very difficult to even know the implications and applications of the new technology.
It's like when the digital age came and we have internet and computerization, you know, now people will say you have a higher suicide rate and mental illness for kids who are on phones.
Now, I would have thought that 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 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. You 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 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, what does doing that badly or not handling it well, what does that mean?
It will have implications for employment.
It'll radically enable, 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.
So it's certainly going to be very disruptive in beneficial and detrimental ways.
And just like all technologies over a period of time, but this one more so, how it's used and how the implications of it are dealt with will be of paramount importance.
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out that's l -i -v -e -m -o -m -e -n -t -o -u -s dot com slash modern wisdom and modern wisdom a checkout i'm interested in the sort of haves 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 increases the desire for sort of populism i have to assume that if ai comes in that is you already mentioned is whatever one percent of the population are working at a bunch of companies and of that one percent 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 accrue to an even smaller group of people.
It's going to displace more people from work.
I think maybe Microsoft just released a huge 40 -page white paper looking at the jobs that are most likely to be displaced and the ones that are least likely to be displaced.
And it's actually quite an interesting cohort when you look at it.
A lot of very working, like lumbering, lumberjacks, logging, boat captains, none of those.
they were the lowest down on the list middle management sports broadcasters historians analysts middle level um 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 see in terms of this increasing polarity, haves -have -nots, and what that's going to mean for human nature and human psychology and levels of well -being?
By studying history and studying human nature, I really do.
I'll touch on that in a minute.
I think that 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 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?
You mean like a UBI type scenario?
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 they'll get angry?
over and you know um 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 are a human nature problem.
That's why I say I believe in 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.
Do unto others as you would have them do unto yourself.
Throughout history, peace, work it out, 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 not sure i think the cycles the cycles are just a description of cause -effect relationships relationships and the actions in their worst part which is you know that part of the cycle where you are 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 rid of the debts.
Now you have a new power and then you begin it again.
That is the way it works.
And then those periods are very dangerous, of course.
Which is worse. One is a description of the process.
The other is a description of the bad part of the cycle understood 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 i think this is one of the big things It's almost people trying to pay a lot of attention to 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?
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 aren't, 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 like a person growing from a kid to get older, get married.
and 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 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 job, your kids, 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'm 76 years old.
I know where I am in my life cycle.
Okay? Do you know? You almost can know 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, 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, cycle.
Happiness tracks the life cycle.
When you're in school, 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.
It's plotted. People ask, 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 as 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 age or something then you get into uh also, it's not as easy as you expected to be on top of the world, and so on, and then you, that's proven.
I mean, that's survey as a result.
Then you go up, and then you get past that, and the happiest point of the life, interestingly, is like 55 to 70, 70 -ish 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 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 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 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 it's like 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 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 you could 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 i reliably this is the direction I think I'm going in the timing the exact certain actions will be taken you know where exactly when you know when you step back like I think when is the U .S. going to have its It's that problem.
I think three years from now, give or take, and I also don't know that I'm absolutely right.
But maybe it's five years from now.
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 seven 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 are you going to cut those things?
Everybody's fighting over it and they look pretty fixed and okay.
And that's going to add up.
So it looks like it's going to go like this.
Anyway, I don't want to over embellish on that, but it looks like, so I'm like a doctor and 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.
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 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 try 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 said, 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.
There's a 40 -Minute Changing the World Order, I think, or 35, I'm not sure, YouTube video, you can watch it, it's free.
And then there's a four minute clip of it.
And that'll probably give you the cycle, but anyway, you've heard quite a bit of it here.
And then it deals more now with what to do about it.
The books begin principles for 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 not even a 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 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 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 when i first started doing personal growth i really wanted to read the best books the most impactful ones the most entertaining ones the ones that were the easiest to read and the most dense and interesting but there wasn't a list of them so I scoured and scoured and scoured and then gave up and just started reading on my own and then I made a list of 100 of the best books
that I've ever found and you can get that for free right now so if you want to spend more time around great books that aren't going to completely kill your memory and your attention just trying to get through a single page go to chriswillx .com books to get my list completely free of 100 books you you should read before you die.
That's chriswillx .com slash books.
