Ray Dalio: What comes after printing money period

printing

Ray Dalio is back to discussing one of his favorite topics, namely the rise and fall of empires, specifically the US and China, over the last 500 years.

Rise and fall of empires

The third chapter of Dalio’s “Changing World Order” series takes a closer look at the rise and fall of the Dutch, British, and American empires and their reserve currencies and, in what will spark howls of outrage from both sides of the discussion, touches on the rise of the Chinese empire, which Dalio views as the next ascendent superpower “to bring us up to the present.”

Life cycle of empires

Dalio’s latest 10,000-word essay concludes that empires – just like humans – have a typical life cycle that ultimately come to an end.

We wanted to highlight the big picture, or what Dalio deems the key events in the “Big Cycle” behind empires’ rise and fall, for one specific reason: we find ourselves in the phase – namely “printing money and credit” – which according to Dalio is immediately preceding the far more troubling phase of “revolutions and wars.”

Phases of a life cycle of an empire

In brief, after the creation of a new set of rules establishes the new world order, there is typically a peaceful and prosperous period. As people get used to this they increasingly bet on the prosperity continuing, and they increasingly borrow money to do that, which eventually leads to a bubble. As the prosperity increases the wealth gap grows. Eventually the debt bubble bursts, which leads to the printing of money and credit and increased internal conflict, which leads to some sort of wealth redistribution revolution that can be peaceful or violent.

Typically at that time late in the cycle the leading empire that won the last economic and geopolitical war is less powerful relative to rival powers that prospered during the prosperous period, and with the bad economic conditions and the disagreements between powers there is typically some kind of war. Out of these debt, economic, domestic, and world-order breakdowns that take the forms of revolutions and wars come new winners and losers. Then the winners get together to create the new domestic and world orders.

Source: Ray Dalio

Where are we now

That is what has repeatedly happened through time. In the chart below you can see where the US and China are currently in their cycles. As you can see the United States is now the most powerful empire by not much, it is in relative decline, Chinese power is rapidly rising, and no other powers come close.

Source: Ray Dalio

Source: Zerohedge.com

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