Dalio, Debt, and National Death Throes
The "Big Cycle" and the Changing World Order
Is the world about to go bust? Are we at the terminus of a historical cycle, when “the old world is dying and the new world struggles to be born,” as everyone’s favorite Cultural Marxist Antonio Gramsci would put it?
As an internet writer with a penchant for the cyclical and the apocalyptic, I am of course always inclined to answer affirmatively. But I was a bit surprised to see that billionaire investor and Darwinian-capitalist extraordinaire Ray Dalio seems to think so as well.
At least that’s the argument Dalio makes in his new book on the “changing world order,” out today, in which he predicts, based on a study of historical trends in politics, geopolitics, economics, and especially debt, that the shit is about to hit the fan. Or as he puts it more politely: “the times ahead will be radically different” from what almost anyone alive today has experienced, given that the “most recent analogous time was the period from 1930 to 1945.”
Unfortunately, Dalio’s record appears to have been pretty good of late, because he seems to have accurately predicted much of the madness manifesting in today’s economic and financial markets nearly two years ago. I say this because, while his book has just been published now, it’s based on a series of notes to investors (also titled “The Changing World Order”) that together totaled hundreds of pages, and which he later published in abridged form on LinkedIn. (All quotes and charts in this post are sourced from there unless otherwise noted. Since I’ve read these rather than the book, this isn’t exactly a book review, but it doesn’t look like much has changed in the hardcover version anyway.)
Now, I do have to say that I’ve never been the biggest fan of Ray Dalio. The famous financier hasn’t just frequently displayed the libertarian arrogance typical of hedge-funders, but built a culture at his firm that is reportedly so bizarrely totalitarian that it’s been repeatedly described as cult-like. He also has a habit of defending China’s CCP regime with uncomfortable regularity. Still, he is clearly a very smart man who has made a lot of money by predicting global “macro” trends, and is probably worth listening to. And if he’s right, he’s right.
At the core of Dalio’s forecast is an analysis of several interconnected and self-reinforcing cycles that he distills from lengthy historical investigations into the rise and fall of empires, including the Netherlands, Britain, multiple Chinese dynasties, and the USA. From this he derives the theory of a “Big Cycle” that is itself driven by smaller cycles of political, economic, fiscal, and monetary policy mismanagement, all of which tend to drive historical periods of imperial decline, political unrest, conflict, and often the reordering of global power. This Big Cycle tends to manifest itself every 75-100 years in a reliable pattern, and its latest conclusion is, he says, now upon us.
But first let’s take a closer look at each of the cycles he describes.
The Debt and Credit Cycle
Given his profession, Dalio devotes special scrutiny to a cycle of debt/credit growth and collapse that has long bedeviled societies, arguing that it is impossible to understand the sources of national and international political upheaval without grasping this cycle.