The video features a conversation with Ray Dalio, one of the most renowned investors, discussing the historical patterns and cycles in economic and political realms. Dalio emphasizes the importance of understanding history to make sense of current events, particularly as the world faces significant challenges. He explains how historical events such as changes in debt, internal conflicts, and the rise of new world powers mirror situations from the past and how studying these patterns can provide insight into the future.

In the discussion, Dalio identifies three major current issues: excessive debt, internal conflicts driven by wealth gaps, and the rise of China as a great power. These resemble past situations that have historically led to changes in global order. He further explains how empires throughout history have followed predictable cycles of rise and fall, drawing parallels with today's global dynamics. Dalio also highlights additional factors like technology, nature, and financial policies that contribute to these cycles.

Main takeaways from the video:

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Key Vocabularies and Common Phrases:

1. devaluation [ˈdiːˌvæljuˈeɪʃən] - (noun) - A reduction in the value of a currency with respect to other monetary units. - Synonyms: (depreciation, reduction, decline)

That's because that was the first time a devaluation happened.

2. monetizing [ˈmɒnɪtaɪzɪŋ] - (verb) - To convert an asset or any form of wealth into money or a legal tender. - Synonyms: (capitalizing, commercializing, banking)

We're producing an enormous amount of debt, particularly government debt, but a lot of debt, and monetizing that in amounts that you would have to go back to the 1930 to 45.

3. populism [ˈpɒpjʊˌlɪz(ə)m] - (noun) - A political approach that seeks to disrupt the existing social order by rallying the common people against elites. - Synonyms: (demagogism, grassroots politics, popularism)

The largest wealth gaps since back then, the largest internal conflict and populism of the left and the right in our country.

4. geopolitical [ˌdʒiːoʊpəˈlɪtɪkəl] - (adjective) - Relating to politics, especially international relations, as influenced by geographical factors. - Synonyms: (international, global, foreign-policy)

So when you have that geopolitical conflict and you put that on top, you have a dangerous set of circumstances.

5. existential [ˌɛɡzɪˈstɛnʃəl] - (adjective) - Relating to existence or the state of being, often used to describe threats to survival. - Synonyms: (critical, fundamental, crucial)

So that that issue is an important issue. It's an existential economic issue.

6. brinksmanship [ˈbrɪŋksmənʃɪp] - (noun) - The art or practice of pursuing a dangerous policy to the limits of safety before stopping, typically in politics. - Synonyms: (gambling, risk-taking, strategic manipulation)

It's purely a matter of brinksmanship and pushing each other.

7. inventiveness [ɪnˈvɛntɪvnɪs] - (noun) - The quality of being inventive; creativity or originality. - Synonyms: (creativity, innovation, originality)

Then inventiveness. And then number five is inventiveness, which then takes technology.

8. divisive [dɪˈvaɪsɪv] - (adjective) - Tending to cause disagreement or hostility between people. - Synonyms: (controversial, polarizing, contentious)

It's becoming unpopular. Now. Imagine a bad situation with capitalism, and then there's, and that's played out through history for good reasons.

9. cyclical [ˈsɪklɪk(ə)l] - (adjective) - Occurring in cycles; recurrent or relating to a cycle. - Synonyms: (recurrent, periodic, regular)

I think it's going to be sticky and it's going to come down very slowly in an orderly cyclical fashion.

10. docket [ˈdɒkɪt] - (noun) - A list of things to be dealt with or done. - Synonyms: (agenda, schedule, program)

I think it's docket ward, but I'm not sure I think it's com.

Ray Dalio Talks About The Changing World Order With Steve Forbes - Forbes Iconoclast Summit

Well, thank you very much. And we've got a very distinguished guest here this morning. Ray Dalio is one of those individuals who's not only one of the greatest investors of our time, but he also is an individual who also realized, and we're going to discuss it, that what Mark Twain said was right. Mark Twain once said, history may not repeat itself, but it rhymes.

And, Ray, why don't you start off? You have always been interested in investing, but then in 1971, you were a clerk. The exchange Nixon goes on tv on Sunday. Tell us what happened then and what you learned. Okay, I'm clerking on the floor of the exchange. 1971, President Nixon announces to the world that the United States is defaulting on its obligation to take that paper that they have, which was like checks in a checkbook, and give them the gold. Close the gold window. Close the gold window. So he defaulted on the obligation to pay the money because the gold was running down. They didn't have enough, and it was like a bankrupt.

So I walk onto the exchange floor expecting. You went early because you thought, yeah, I expect that there's going to be a chaos and things would be bad. And the stock market went up the most in decades, and I didn't understand it. And that's because that was the first time a devaluation happened. I never went through one of those. And I studied history, and I found the exact same thing happen on March 5, 1933, except it was with Roosevelt and a radio rather than a tv, and the exact same thing. And the stock market went up a lot.

And so what I learned, and I had this repeatedly in my life, that things that surprised me, often surprised me, because they didn't happen in my lifetime, but they happened many times in history. So, for example, by studying that 19, the 1920s to the 1945 period, I saw that the same. I understood the nature of the 2008 financial crisis, when we anticipated the 2008 financial crisis, because what happens when you have a lot of debt and interest rates at zero? How does that work? And that dynamic is what happened in 2008.

And so it's very much emphasized in my mind how, in order to understand things that never happened in my lifetime, I have to study history. And there were three major things. There are three major things that are now happening in our lifetime that didn't happen, other than you'd have to go back in history. Those three things are, we're producing an enormous amount of debt, particularly government debt, but a lot of debt, and monetizing that in amounts that you would have to go back to the 1930 to 45, period.

Number two, we have a level of internal conflict, the largest wealth gaps since back then, the largest internal conflict and populism of the left and the right in our country. And at Warren, a populist is an individual who will not accept losing. They'll win at all costs. So that dynamic is new. You have to go back really to the thirties, around the world or before. And the third is the great power conflict. In other words, the rise of a great power in the form of China, that is a comparable power in the world, and that dynamic. So in order to see that, I needed to then study the past 500 years of history.

Now, I know people think it's odd, because here I am, I'm just trying to make money in the markets. I'm a practical guy dealing with that. But we would not understand that. And the picture of the world is a very different picture, picture than we have grown used to because of the nature of these longer term cycles. So you studied ten empires, four in particular relevance to us, the Dutch, the British, the US and China. And you have come to the conclusion that there are, these empires are great powers, go through cycles.

And as you say, even though times and circumstances have changed, the cycles don't. And be prepared. Even though it has not happened in your lifetime, big, disruptive things can happen. Well, I think it's not adequate to just assume that because it happened in the past that it's going to happen. Or the cycles, what the cycles do is they shine light on the cause effect relationship. So let's take a basic dynamic. If you have a financial crisis and we can get into what causes it, at the same time as you have large wealth gaps and therefore big disagreements, you are likely to have populism. And if you have those two things coming together, it's an explosive combination.

It was said in the earlier session, for example, capitalism. What about capitalism? It's becoming unpopular. Now. Imagine a bad situation with capitalism, and then there's, and that's played out through history for good reasons. If you combine that with the external conflict, the war, the external. When I say war, it is a reality that there are measures of health in an economy's rising and declining. And so when you have that geopolitical conflict and you put that on top, you have a dangerous set of circumstances.

In doing that examination of those periods, I found also that there were two other big factors that mattered. Those were, interestingly, acts of nature. Droughts, floods and pandemics killed more people and toppled more of the civilizations than the first three I mentioned. Then inventiveness. And then number five is inventiveness, which then takes technology. The technology. So when I look at these, all of these five coming together, I think we're going to go through, it'll be almost like a time warp that we're going to go through that over the next five to ten years.

The world is going to be very, very different than it is today. So let's quickly touch on. You talk about the rise of a power and empire. It peaks and then it declines. Walk us, pick the Dutch or any empire. Walk us through those kinds of phases in what we can, what we can expect. Okay? An order. When I say a world order or domestic order is the way you're operating the system, that you're operating on how people work each other. Well, in other words, 1945, we began a new world order.

Or in some countries, they change their domestic order, they have a revolution. But there's always a war at the beginning, some kind of conflict at the beginning, and the system changes. Okay? 1945, we have a war. There are new winners of the war, whether that's domestic or internally, there's a war. And now the new folks are in charge, and they then determine what's going to happen. They set the rules. United States. Since 45, we've been the american world order. The reason the United Nations IMF World banker in the United States system, the reason the current dollar is the world's reserve currency, is because of that. They set the rules over that period of time. Then you don't go into a war. You have a period of rebuilding and then usually a period of prosperity, because nobody wants to go into war again.

And then, so you begin this cycle, and then that cycle, then to take you through very quickly that has higher levels of productivity and so on. Basics matter, things like education. And when I say education, well, just for the audience sake, Ray has come up with 18 metrics of measuring health, eight particular very important ones. You mentioned education. I just want you to touch quickly on it's not just knowledge and learning, but also you talk about character and other aspects. Define that for us. That's very important. Education, of course, of the ability to do your reading, arithmetic and all of that. But it also is character development. In other words, you build certain types of people who are capable and also understand characters. The ability to get themselves, do the difficult things and to work in a community for a better purpose. That is a fundamental ability.

So all of these early stages have those elements, and then they have capital markets in the early stages. Always it's a great benefit if you can put resources in the hands of those who are capable and make those things happen. But over that period of time, debt rises relative to GDP. And there's a mindset, change from a mindset of conservatism. Those who went through the war, my dad who went through the depression, was not going to be a quick and easy speculator in the stock market. And then they get paid and you get rewarded because the environment improves.

And then you become a world's reserve currency, because when you're dominant in the world in trade, let's say the United States had the highest percentage of trade. It was half the world's economy, half world GDP, and it dominated trade. So through all of these cases, they bring their currency along and that becomes the vehicle that others want to save in. And when they save in that currency, then of course they are lending you money. And so that compounds. In other words, when a foreigner buys a bond, what they're doing is lending you money. And so the debt tends to compound over a period of time. And then new powers come along. They learn from the great power. The British learned from the Dutch, how to build ships that would take them all around the world. So that learning and that rise in their capabilities produce as competitors in the world.

And so you start to see the new empire becoming more competitive and also having those aspects. And the British also learned capital markets when William of Orange became king of England and the bank of England, right? Each one of these empires then has the financial center. So the Dutch had the world's financial center. They had the world's reserve currency. They had the best education system. They had these elements then the first exchange. So Amsterdam was the world stock market financial hub then in the British Empire. London was then in the United States Empire. New York was or still is. And then now what you're having is a change in that dynamic, of course, where there's then that competition, the great power competition, when those things operate in line together, that's important.

So now this is a bigger cycle. Within that bigger cycle, there's a shorter cycle. Okay, look, we all know what the classic business short term debt cycle is because there have been twelve since 1945. We're now twelve and a half cycles into them. They're the ones, you know, you have a recession, high unemployment, low inflation. Central banks produce a lot of money. And credit, you have that improvement productivity. It's the sweet spot of the cycle. Then you get past the sweet spot, you produce inflation. Then they tighten monetary policy. And then with the tightening monetary policy, they pull the money and then things slow up and then you have the downturn and you do that over and over again.

So we know where we are in this cycle. We are in twelve and a half cycles into this. We're about halfway through this cycle. So we're in the part of the cycle where the central banks have tightened monetary policy, probably close to enough, but in my opinion, not that term structure of interest rates has too much of an easing built into it, where there will need to be interest rates will need to stay higher for a longer period of time.

Putting that in perspective, let's say if we use some, that with that level of tightness, you have to have a real rate which is high enough for the creditor without having a real rate that's too high for the debtor. So if you take about a 1% real rate, which is, I would say that rule of thumb, it should be in that probably that vicinity, 1% real rate. And then you take a quarter, or if you're lucky, you get the 3.5%, probably 4% inflation. I think it's going to be sticky and it's going to come down very slowly in an orderly cyclical fashion. Then you're looking at a 4.5 or 5% interest rate. You have that close to that in the short end of the yield curve, but you have a big build and you have a bond yield, which seems too low.

And so I think you're going to keep relatively high interest rates. That is, if there's a normal supply demand condition. But there's also a risk. Okay, what's the risk of the two? Just let me get this last punchline point out, because I think it's important. What is the risk of too much debt? How does that work? Well, mechanistically, the more debt you have, the more debt service you have to pay and it starts to encroach on your other spending. Like in Singapore, 20% of the income of the government comes from net savings that they have in earns United States. It's about 20% goes the other way.

We have to pay it that increase. But the big risk and the risk that we have to watch out for is when the holder of that debt doesn't want to hold that debt anymore, or let's say the supply demand balance. So for example, right now we have to sell a lot of debt and the holders of that debt globally are holding a lot of government debt. So the bottom line is when the potential buyers decide they don't want to buy, government has two choices. Central bank either raise the interest rate to bring the buyers in, which is going to hurt the domestic economy, or print the money. They always go for printing the money.

Now, in terms of, in these metrics that you have, the US you'd make the case is a declining power. China is a rising power. But you have spent a lot of time in China. You've spent a lot of time talking to leaders there and around the world. You said you believe that us and China on the brink of war and beyond the ability to speak. Beyond the ability to speak is crucial because in the Soviet Union cold war days, we had mechanisms in place where if something went wrong, you could make sure this thing didn't spin out of control as it almost did in 1962.

Today, in terms of two kinds of wars, one is economic sanctions war and the military and the economic sanctions war, we tend to think, oh, well, that's just a few tariffs and things like that. Talk about how this can spin out of control, starting with micron technology, which China's threatened with destruction. Okay, let me first make clear, clear, I'm just describing what has happened. The relative position of the United States has declined. The relative situation in China has risen. They are now comparable powers. I am not saying that the Chinese are going to win over the Americans or anything like that.

I'm just trying, I don't know how this game is. There are going to be comparable powers in a conflict and those conflicts are multidimensional. So they're about Taiwan chips, Russia. These are red lines. These are red lines. We are now at a spot in that relationship where they're at close to each other's red lines. And they recognize that almost talking is counterproductive because there's so much blaming and trying to untangle how we got here, that it talking. So they are at the red lines. They're at the brinks. And talking is a problem.

Both sides are very concerned about the possibility of war and different types of war. Economic war, certainly a chips war. An economic war is a very big risk. And that that is happening at a time that probably conditions might get more contentious because of the political season we're in. So in other words, between now and two years from now, when the new administration comes in, you're going to have, there are a lot of hawks that want to push those lines, too.

And so there's that edge. I'm saying simply that that is a highly risky situation. And on many things you will see a tough game being played because there's, in world affairs, there's not a judge and jury that you plead your case to and resolution, it's purely a matter of brinksmanship and pushing each other. So that that issue is an important issue. It's an existential economic issue. I mean, if we start to think where do, where would a chips war lead? Or where those, even in good times, it's a big issue because of the fact that supply line changes.

We're no longer in a world in which producing most efficiently, wherever it can be done, is the primary goal. It's instead self sufficiency to prepare for war. And that has an inflationary consequence. It has an economic consequence. So we're kind of very close to that. I want to just, in closing, because I know we're about to run out, I just want to emphasize something particularly that Mary Erdo said.

I think when you throw in the new technologies, I'm deeply involved with generative AI technologies and so on. And if you move that forward and you start to, the world is going to change in ways that we cannot anticipate, and it's going to be a different world. And the emphasis of a few points that were made, and I want to reemphasize is a few things.

First, that diversification. To understand how you can diversify well without reducing your returns, because if you buy equally good things that are not correlated, and then you can do that, you can reduce your risks by about 80% if you can know how to do that. So diversification and knowing how to do that and looking globally in terms of the differences is very, very important.

I would also say that I think the new toxic debt is government debt. So if we look at that, where we're looking at what are the bank, what's the real problem with the bank? The real problem with the banks is the same as the problem with the Federal Reserve. If the Federal Reserve was a commercial bank, it would be in the same position because it's lost a lot of money in its bonds and it's short term liabilities.

And that's true in Europe, that's true around the world. So these are certain themes I know we're running out of. We're overtime. So I just want to make sure I got those things out. Well, when you make study histories, you have and made so much created wealth for clients, you have earned extra time and you can go economic principles to get Ray's constant insights.

Leadership, Economics, Global, History, Debt, Economic Cycles, Forbes