Five Forces Shaping the World Order | Ray Dalio | USA House

I think we have to step back and think of broader forces. One of the problems that repeatedly happens is everybody pays so much attention to a news item and then it's so startling, the US with its international relationship, Greenland and so on, and this is so startling, Minneapolis is so startling and so on, and they don't look back at the arc. Even a year is a small time in that arc of history. I know that the reason I anticipated the 2008 financial crisis or the European crisis from 2010 to 15 is because I studied the 30s. And so maybe I can just give you a sense of that because I wanted to study the rises and declines of reserve currencies. I studied the last 500 years of history because they take a while. And what I learned through that exercise is the same thing happens over and over again and it's like a movie for me. It's like watching the same movie happen. So what does that movie look like? In brief, there are five big forces that interact and tend to evolve in a cycle pertaining particularly, let's say, to, so most importantly perhaps as a leadoff is the money debt cycle. Okay. So, and we start in 1945. Okay. 45 is the new order. And so there's a money debt economic market cycle and what happens very briefly is that when debts and debt service rise faster than incomes, the debt service payments squeeze out spending until you can't do that anymore. And for governments when that debt crisis happens, there's a question of do you print money or do you let debt crises happen? And since 1971 when we broke the link with the dollar, we choose to print money. We have a fiat monetary system. So there's a monetary order and that also has to do with the supply and the demand for debt. So we think, what is money? What is a storehold of wealth? Central banks hold it and what is it like? So, we are now dealing with the breakdown of the monetary order. Okay, when we'll get into this but I'm sure, but you have how central banks are changing the reserves, why they are buying gold, why you are seeing the change in the complexion. So that monetary order, and throughout history monetary orders have always broken down. Related to this economic cycle is the domestic political cycle because money and economic conditions affects politics. And so throughout history you've had these cycles where you can come and have irreconcilable differences when there's great wealth and values gaps. Then there is great conflict about what should be done and democracy becomes threatened because it's now populist at each side and it's win at all cost and there's not the same belief in the system working for them and it's almost perceived as everybody's on one side or another and it's a corrupt system. And so that's what we're seeing operate now across countries. And the third influence is the change in the world order. How was the world order at the end of World War II? Because the United States was the dominant power. It brought in the idea of a new type of world order almost representing an analogous version of the American representative system. In other words, a multilateral world order where there's a United Nations and there's a world court and there's a world trade organization and a world health organization and these multilaterals where there's representation. Okay? And that didn't exist before. And then, but it's almost a naive system when you have the fact that the most power, every system, every representative legal system has to have enforcement mechanisms. So what happens when the leading power doesn't want to abide by the vote? Do you really expect that there's going to be a United Nations vote or a world court that's going to resolve these things? So you're seeing a breakdown of the world order and going from a multilateral system to a unilateral system. So people in their minds with sympathy for a rules-based system. Okay. Who makes the rules? Who enforces the rules? How does that work? Okay, that's a question of our time. Number four influence is acts of nature. Droughts, floods, and pandemics through history have killed more people and toppled more orders than before. And number five throughout history is man's inventiveness of new technologies. And certainly we're having the greatest one of the greatest inventions if not the greatest invention when human intelligence is working with artificial intelligence and so on and what that means. So those five forces you can see operate in certain cycles and everything that we talk about has to be related to the interactions and that cycle. So there's not a question you can ask or a topic that we can that is not interdependent but there is this broader cycle that we're in. So we have to be realistic about those things.