Ray Dalio: "Easy money has widened the gaps, let's get ready for civil and global wars"

A financial and geopolitical crisis that leads to enormous social tensions within the great Western democracies and leads to a global conflict between the US and China in which the Asian power puts an end to the “American Empire”. It’s an apocalyptic scenario, painted not by anonymous internet anarchists or a Netflix screenwriter, but by Ray Dalio, one of the biggest investors ever. In his book “The New World Order”, to be released in Italy, the founder of Bridgewater, the richest hedge fund in the world, analyzes history to understand how empires arise and fall. His conclusion is frightening: we are at the end of American hegemony.

Why does he say we are at the end of the American Empire?
“There are three great forces that exist now that have not been present in our lives, but have existed many times in the past: the huge debt production, the printing of money to monetize that debt, and the internal conflicts of leftist populism and of the right caused by the wide gaps in wealth and values. These forces are leading towards a civil war and a major power conflict between the United States and its allies and China and its allies. These three things are happening simultaneously. The last time this happened was between 1930 and 1945. If you look at the news that comes month after month you will see a movement towards the combination of a financial crisis with a great internal conflict and with a great external conflict ”.

How long will it take to get to the conflagration?
“We are already seeing it right now, but I think it will probably be much worse in 2024 or 2025, after the upcoming US elections. There has been a lot of debt and money creation which has produced a lot of inflation. The result is that central banks try to calm inflation by taking money and credit from people so that their purchasing power is lower, and this, in turn, weakens the economy.

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So is a major crisis inevitable?
“No. The final destination can certainly be changed, even if it is unlikely. It all depends on how we all want to be together. There is a lot of wealth and living standards, on average, are higher than in the past. Man’s ability to invent tools that improve our lives has never been greater. We just need to increase the size of the cake and divide it intelligently. But history suggests that it is not likely. ‘

But in the book you also explain that this is a cyclical process. So it is possible that we are simply experiencing a transition period.
“True, but these transitional periods, which typically last about ten years, include depressions and wars.”

Let’s go back to the financial situation. The debt you mentioned is the direct result of a stimulus created to help the world economy. Would he have done something different?
“When governments and central banks increase people’s purchasing power by creating a lot of debt and money, it doesn’t increase productivity and creates financial obligations for the future that either lead to recession or inflation.”

Isn’t it true that the people who benefited were the ones who owned financial assets and now that the people who suffer the most are those without financial resources?
“Yup. It is an unfortunate fact that those with less wealth suffer more and more in difficult times ».

How can we fix it?
“If you want your children to have a financially stable life, you need to give them a good education, civility and a good work ethic.”

How did you change your investment strategies in light of what you have learned?
“I am not investing in debt assets and have bought assets that provide inflation protection. I am investing in countries that are in good economic health and do not run the risk of entering an internal political war or an international war. As a result, while the stock market and bond markets are down sharply this year, we are up sharply. “

Why should people listen to advice from a billionaire?
“Nobody needs to do that. What they do is up to them. I publish this stuff, then it’s up to people to decide whether to believe it or not. However, if I were in their shoes, I would probably think that if this gentleman became a billionaire by betting on these things, maybe he has a good track record and his reasoning of him is worth hearing. Also, if people think that because I am a billionaire, I have lost touch with reality or have a distorted perspective, they should know that I started with nothing, and not many years ago. In 1982 I had no money. I had so little that I had to borrow $ 4,000 from my father to pay the bills. ‘

In the book it is clear that you think the next empire at the end of the transition will be that of China. Have you changed your mind in light of the war in Ukraine?
“No. The movement towards an international conflict is advancing even faster than I expected, by about a couple of years. China and Russia are almost allies and the biggest power is China. Russia does not have the power to compete economically. For this reason, I expect the conflict to include China soon. “

Aren’t you afraid of making powerful enemies with this book?
“It is true that speaking in an open and controversial way is increasingly dangerous these days. However, I am 72 years old and I believe that at this stage in my life I have to do the right thing. I wouldn’t feel good about myself if I didn’t speak honestly about what I think because I’m afraid of what others might do to me. “

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