Original article by Ray Dalio
Compiled and edited by: BitpushNews
On the morning of April 7, Eastern Time, Ray Dalio, founder of Bridgewater Associates, said in his latest article that the current market is overly focused on the appearance of tariffs and ignores deeper systemic changes. Dalio believes that we are witnessing the simultaneous reconstruction of five major forces:
Monetary/economic order collapse;
the disintegration of the domestic political order in the United States;
the reorganization of the international geopolitical order;
the destructiveness of natural disasters (droughts, floods, and epidemics);
The significant impact of technological changes (such as artificial intelligence).
The following is the full text of the article:
Right now, a lot of attention is rightly focused on the tariffs that have been announced and the huge impact they are having on markets and the economy, but little attention is being paid to the underlying reasons that led to these tariffs and the greater disruption that could follow. Don’t get me wrong, I’m not saying these tariffs aren’t important – they are, and we all know that President Trump is the key figure behind these tariffs, but most people are ignoring the underlying context that led to his election and the introduction of these tariffs. They’re also mostly ignoring the more important forces that are driving everything, including the tariffs.
The larger and more important fact to keep in mind right now is that we are witnessing a classic collapse of a major monetary, political, and geopolitical order, the kind that usually only happens once in a lifetime but has happened many times in history, whenever similar unsustainable conditions emerge.
More specifically:
1. The monetary/economic order is collapsing because there is too much existing debt, and new debt is being added too quickly, while the capital markets and the economy are dependent on this unsustainable amount of debt. This debt is unsustainable because there are serious imbalances - on the one hand, debtors (such as the United States) are heavily indebted, but continue to borrow to finance their excessive consumption because they are addicted to debt; on the other hand, creditors (such as China) already hold too many debt assets and rely on exporting goods to these debtor countries (such as the United States) to maintain their own economies. There is great pressure for some form of correction of these imbalances, and such correction will change the monetary order in a significant way.
For example, it is clearly incongruous to have large trade imbalances and capital imbalances in a deglobalized world where major players do not trust each other and fear that the other will cut off the supplies they need (this is the concern of the United States) or default on their debt obligations (this is the concern of China). This situation is essentially a state of war in which achieving self-sufficiency is the top priority. Anyone who has studied history knows that in similar situations, risks often lead to the problems we face today.
Therefore, the old monetary/economic order—where some countries provide cheap manufacturing, the United States imports from them and accumulates huge debt burdens, and countries such as China accumulate U.S. debt assets—must change. This unsustainable situation has been made more serious by the decline of U.S. manufacturing, the loss of middle-class jobs, and the deepening dependence on Made in China. In the era of deglobalization, this huge imbalance that reflects the high degree of interconnectedness of trade and capital must be reduced in some way.
In addition, the level of US government debt and the speed at which it is growing are clearly unsustainable. (For more on this, you can refer to the analysis in my new book How Countries Go Broke: The Big Cycle.)
It is clear that in order to reduce these imbalances and excesses, the monetary order will have to change in dramatic and disruptive ways, and we are currently in the early stages of this process. This change will have huge implications for capital markets and, in turn, for the economy, a topic I will explore in depth at another time.
2. The domestic political order in the United States is breaking down because of the huge gaps between the American people in terms of education, opportunity, productivity, income and wealth, values, etc. - coupled with the inability of the existing political system to address these problems. This situation is reflected in the unscrupulous power struggle between populists on the left and the right, vying for control of affairs. This leads to the collapse of democratic systems, because democratic systems require compromise and adherence to the rule of law, both of which history shows will collapse in periods like the current one.
History also tells us that strong, authoritarian leaders often rise in environments where the rule of law and democratic institutions are weakened. Obviously, the current unstable political situation will be influenced by the four forces mentioned above - for example, stock market and economic problems are likely to cause political and geopolitical problems.
3. The international geopolitical order is collapsing because the era of a dominant power (the United States) leading and setting the order and other countries following is over.
The multilateral, cooperative world order once led by the United States is being replaced by unilateralism based on strength first. In this new order, the United States remains the most powerful country in the world and is shifting to a unilateral America First approach. This has been demonstrated through trade wars, geopolitical conflicts, technology wars, and even military conflicts led by the United States in some cases.
4. Natural disasters (droughts, floods and epidemics) are having increasingly devastating impacts;
5. Technological changes (such as artificial intelligence) will also have a significant impact on all aspects of life, including the monetary/debt/economic order, the political order, the international order (through its impact on economic and military interactions between countries), and the cost of responding to natural disasters.
The changes in these forces and how they influence each other are what we should really focus on.
Therefore, I urge everyone not to be distracted by the dramatic changes such as tariffs, but to focus on these five forces and their interrelationships, because they are the real driving forces of overall big cycle changes. If you are confused by these appearances, you will:
a) Ignoring how the reality and dynamics of these major forces generate news events;
b) Not thinking deeply about how news events react to fundamental forces;
c) Departure from tracking the typical evolution patterns of large cycles - this is the key coordinate for predicting the future.
I also want you to think about these key interrelationships. For example, think about how Trump’s actions on tariffs will affect:
1) the monetary/market/economic order (it will have a disruptive impact on that order),
2) the domestic political order in the United States (which would likely be disruptive, as it could undermine its support),
3) the international geopolitical order (which will obviously cause disruptions in financial, economic, political and geopolitical terms),
4) Climate issues (which will, to some extent, weaken the world’s ability to effectively respond to climate change),
5) Technological development (which will have a positive impact on some aspects of the U.S., such as bringing more technological manufacturing back to the country, but will also have a negative impact on the capital market, which is the support mechanism for technological development. There are too many other aspects to list one by one).
As you think about this, remember that what is happening now is just a repeat of what has happened over and over again in history. I suggest that you study the actions that policymakers in similar situations have taken to help you build a list of possible actions - such as suspending debt service payments to enemy countries, setting up capital controls to prevent free capital outflows, imposing special taxes, etc. Many of these policies would have been unthinkable not long ago, so we should also study how these policies work.
The collapse of monetary, political, and geopolitical orders is often followed by upheavals in the form of depressions, civil wars, and world wars, followed by the emergence of new monetary and political orders to regulate interactions within countries, and new geopolitical orders to regulate interactions between countries, until these new orders collapse again. This process repeats itself over and over again, and is the historical law that we should understand most deeply.
I have written about this in detail in my book, Principles for Dealing with the Changing World Order, which shows how this “overall cycle” unfolds in six clearly identifiable stages, transitioning from one order to the next. The book is detailed enough to help you compare the current situation with typical historical developments, so you can identify which stage we are in and what might happen next.
When I wrote that book and others, I hoped, and I still hope, that:
1) It can help policymakers understand and interact with these forces, leading to better policies and better outcomes;
2) help individuals—who cannot influence policy individually but who collectively have power—better navigate these forces and thereby achieve better outcomes for themselves and those they care about;
3) Encourage smart people with different opinions to have open and in-depth exchanges with me, and work together to discover the truth and find ways to deal with it.
