Principles for Dealing with the Changing World Order by Ray Dalio

TL;DR Empires follow a predictable 250-year cycle of rise, top, and decline driven by debt, internal conflict, and external rivalry. Investors should buy stocks, gold, and commodities when central banks print money to relieve crises.

Money printing causes asset prices to rise and currency value to fall.

• The US broke the link to gold in 1971 and 1933 during financial crises.
• This action allowed governments to spend more than they earned by printing paper money.
• The increase in dollars without increased wealth caused the value of each dollar to fall.
• New dollars entered the market and bought stocks, gold, and commodities, raising their prices.
• Central banks printed money in 2008 and 2020 for similar reasons.
• Investors should buy these assets when central banks print money to relieve a crisis.

The big cycle consists of three phases: rise, top, and decline.

• The rise begins after a major conflict establishes a new leading power and order.
• Leaders establish strong education, innovation, and competitive markets to build wealth.
• The country develops a reserve currency that allows it to borrow from the world.
• The top phase features high prosperity but also growing wealth gaps and excessive borrowing.
• People become less hardworking and more decadent as they inherit wealth rather than earning it.
• The empire borrows heavily from poorer countries that save in its reserve currency.

Decline results from internal conflict and unsustainable debt levels.

• Financial bubbles burst when debts become too large and economic conditions worsen.
• Governments choose to print massive amounts of money instead of defaulting on debts.
• Printing money devalues the currency and raises inflation significantly.
• Wealth gaps cause political polarization between those who want to redistribute wealth and those who want to keep it.
• Rich people move their assets to safer places, reducing tax revenue for the empire.
• Internal conflict weakens the empire and invites challenges from rising external rivals.

Current global conditions mirror historical patterns of changing orders.

• Three major events have occurred recently that had not happened in Ray Dalio’s lifetime.
• Countries lack enough money to pay debts even with zero interest rates.
• Central banks are printing large amounts of money to cover these deficits.
• Internal conflicts arise from growing gaps in wealth and values among citizens.
• External conflicts increase between a rising great power (China) and the leading power (US).
• These factors combined typically lead to changes in domestic and world orders.

Next steps

• Study the past 500 years of history to understand current situations.
• Monitor vital signs like education, technology, and debt levels to assess empire health.
• Earn more than you spend to improve personal and national financial health.
• Treat each other well to reduce internal conflict and social division.
• Read the book *Principles for Dealing with the Changing World Order* for detailed analysis.