"A Terrifying Financial Disaster Just Begun" by Ray Dalio
Ray Dalio: A Terrifying Financial Disaster Just Began
Casgains Academy: Jan 3, 2022
Ray Dalio just predicted the collapse of America and detailed exactly how the economic system is faltering. History always repeats itself and while humans always innovate, emotions never change.
The economy functions in cycles because human behavior is extremely predictable. New generations always repeat the same mistakes as the older generations because most are not informed about history.
Ray Dalio believes that he recently spotted a big cycle that is pointing towards the downfall of the American empire.
Dalio is the founder and CIO of the world’s largest hedge fund, Bridgewater Associates, which has generated immense returns from macroeconomic bets over the past few decades.
There are three main indicators that Dalio is closely watching.
First of all, the wealth and opportunity gap are creating significant division within the United States.
While household wealth is broadly increasing in the US, the upper class has grown their wealth disproportionately compared to the lower class. As demonstrated by this graph, the household wealth of the bottom 50% of the United States is lagging behind by a considerable amount.
The wealth gap is becoming so significant that the top 10 percent of the US now owns 70% of the entire US wealth. A thriving economy is typically great, but the wealth gap is instigating a growing tension between the economic classes.
We can see this with how polarizing politics has become. Whether you like it or not, the political spectrum is becoming increasingly radical. This is creating internal disorder, a key factor to the downfall of economic powerhouses.
The next major concern is the US government’s growing debt balance, which has been exacerbated by the pandemic. Total US debt has increased from roughly $15 trillion in 2012 to $29 trillion today.
Despite this massive debt problem, the government is still continuing to spend enormous sums of money. Congress recently attempted to pass the Build Back Better Bill, which would have cost $1.9 trillion if it passed.
However, Senator Joe Manchin prevented the bill from passing by voting against it. Even though the Build Back Better act didn’t pass, the Federal Reserve isn’t helping inflation at all. Interest rates are still at 0 percent at the moment, although the Fed does plan to raise rates soon.
All of this is happening while the inflation rate is accelerating to levels that cannot be called transitory anymore.
To make matters even worse, a rising world power, which is China, is challenging the US as the most powerful world power. Regardless of whether you like China or not, one thing is clear: China is becoming more and more economically competitive.
The CEBR World Economic League recently predicted that the Chinese GDP will surpass the US GDP by 2028. China is changing the world order by growing its economy at incredibly quick rates that could eventually overtake the US.
Dalio covered this in-depth in his new book, Principles for Dealing with the Changing World Order. China challenging the US as the dominant power is called external disorder.
Ultimately, there are three different cycles that are converging right now: the long term debt and capital markets cycle, the internal order and disorder cycle, and the external order and disorder cycle.
These cycles have played out many times with the Dutch, British, and Chinese empires. For instance, the Dutch experienced a similar level of power after they invented the first stock market, which was an effective measure for building the country’s wealth.
This prosperity created a wealth gap, where only the richest people had the greatest opportunities, such as being educated. The Dutch empire built ships that allowed them to bring their currency globally, allowing their currency to become the reserve currency.
For reference, a reserve currency is when other countries trust a currency to hold its value. Therefore, other countries began to hold the reserve currency in an effort to protect their country in the event that their own currency fails.
Over time, the Dutch became complacent about their economic position.