Ray Dalio: Changing world order and learning from the history

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Ray Dalio is an American billionaire investor and hedge fund manager, who has served as co-chief investment officer of the world’s largest hedge fund, Bridgewater Associates, since 1985. He founded Bridgewater in 1975 in New York.

Ray Dalio also writes about the big picutre of events, including the situation at the Ukrainian borders. Let us summarize for you the most important information. 

Changing world order and learning from the history

While most people are now focusing more on the tactical moment-by-moment developments of the Russia-Ukraine-NATO conflict, I am focusing more on the big picture of the changing world order that this conflict is the latest manifestation of, and 2) while most people are looking at this conflict in isolation, I view it as something that has happened many times before in similar historical cases that we can learn from.

Three big forces are changing the world order:

1. The Financial/Economic:

Currently the world’s leading power (which typically has the leading currency) is spending much more money than it is earning, which is leading it to borrow a lot and print a lot of money to buy the debt, which is reducing the value of the debt and money relative to the value of goods, services, and non-debt investment assets. This is producing inflation in goods, services, and investment assets. History has shown that when the coffers are bare and this sort of money printing takes place, financial weakness is near, and financial weakness causes all sorts of problems and it is the precedesor of declines.

2. The Internal Conflict:

The Internal Conflict One: Classically and currently there is great internal conflict over wealth and values gaps that is leading to populism of the right and populism of the left and fights between the sides. There is a “win at all cost” mentality, which eliminates the compromising and rule-following that is essential for maintaining internal order. The more internal disorder there is the more polarity and fighting there is, which typically leads to some form of civil war.

3. The External Conflict:

Classically and currently the rising of one or more foreign powers to become comparable in power to the leading power(s) leads to power struggles, typically external wars, that determine which power(s) will be in control and what the new order will be.

Big Cycle of Rise and Fall of Empires

Classically and currently these three conflict cycles, i.e., the financial/economic one, the internal conflict one, and the external conflict one—are both individually evolving and influencing each other to create the Big Cycle of rises and declines of empires, countries, dynasties, and world orders.

What are we seeing now is an end of one such Big Cycle and the fall of the current world order. 

In the history at such times, stock market closures were common in a number of countries, leaving investors in stocks stuck without access to their capital. I should also note that money and credit were not commonly accepted between non-allied countries during the war because of a justifiable wariness about whether the currency would have any value.

How to protect your wealth in such times?

Protecting one’s wealth in times of war is difficult because normal economic activities are curtailed, traditionally safe investments are not safe, capital mobility is limited, and high taxes are imposed when people and countries are fighting for their survival. Protecting the wealth of those who have it is not a priority relative to the need to redistribute wealth to get it to where it is needed most. When hot wars happen, classically it pays to sell out of debt and buy gold because wars are financed by borrowing and printing money, which devalues debt and money, and because there is a justifiable reluctance to accept credit.

Conclusion

While Ray Dalio did not directly mention digital currencies in his article, it is also one of the possibilities how to keep your wealth safe in such turbulent times. While having physical gold could be also beneficiary, it has some disadvantages too, for example it could be dangerous to carry around larger amounts of gold, it has limited liquidity and it could be harder to divide for payment of small amounts and it is not possible to send it easily to another country. Digital currencies on the other hand are dependent upon internet connection, but as we saw in the several past days, there are options how to connect, for example Starlink.

Source: LinkedIn (Italics added by Platon Life)

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