Overview
Principles for Dealing with the Changing World Order examines history’s most turbulent economic and political periods to reveal why the times ahead will likely be radically different from those we’ve experienced in our lifetimes—but similar to those that have happened many times before. We are taking notes (below) as we read.
Introduction
Current Changing World Order
Confluence (a situation in which two things come together or happen at the same time) of huge debts and zero or near zero interest rates that led to massive printing of money in the world's 3 major reserve currencies.
Big political and social conflicts within countries, especially the US (due to the largest wealth, political and values gaos in roughly a century
Rising of new world power (China) to challenge the existing power (US) and the existing world order.
With just these three converging pieces Ray Dalio compares it to 1930 to 1945. But then (while researching for this book) Covid-19 hit. Another global shift new to most people, but pandemics have happened throughout history and Dalio notes that overall have had far greater impacts than any wars or depressions.
Studied different aspects of Empire's growth and decline
Education
Productivity
Trade
Military
Currencies
and more...
Big Cycles
The peaceful/creative periods lasted at a 5:1 ratio longer than the depression/revolution/war periods.
Peaceful and prosperous periods of great creativity and productivity that raise living standards a lot
Depression, revolution, and war periods when there is a lot of fighting over wealth and power and a lot of destruction of wealth, life, and other things we cherish.
Solution of the big cycles:
Gets rid of weakness and excesses in the system (such as debt)
New monetary system
New economic system
New political system
Why Study?
"I believe that the reason people typically miss the big moments of evolution coming at them in life is because they experience only tiny pieces of what's happening. We are like ants preoccupied with our jobs of carrying crumbs in our very brief lifetimes instead of having a broader perspective of the big-picture patterns and cycles, the important interrelated things driving them, where we are within the cycles, and what's likely to transpire." - Ray Dalio
What to Study?
"Productivity and Structural Reform: Why Countries Succeed and Fail, and What Should be Done So Failing Countries Succeed"
Studying money and credit cycles throughout history made me aware of the long-term debt and capital markets cycle (which typically lasts about 50 to 100 years), which has led me to view what is happening now in a very different way than if I hadn't gained the perspective.
Examples
1930's compared to 2008 crash
Interest rates hit 0 percent and central banks printed money and bought financial assets in response
90 years ago central bank actions of creating a lot of money and credit/debt pushed financial asset prices up, which widened the wealth gap and led to an era of populism and conflict.
We are now seeing the same forces at play in the post-2008 period.
2014 Global Economic Growth rates
Studied to find the drivers of growth and come up with timeless and universal indicators for anticipating countries growth rates over 10-year periods.
This allowed to see which countries did better and worse
Now use to see/predict 10 year growth estimates across the 20 largest economies and allowed to see the timeless universal cause and effect. (Like an Equation - If you change X, Y happens)
This 10 year growth prediction also allowed to see other factors like EDUCATION and its effect with indebtedness. As well as the comparison to other growing countries like India and China.
The election of Donald Trump in 2016 brought the increase of populism around the world.
Populism: The Phenomenon
Highlighted the gaps in wealth and values that led to deep social and political.
Also shows how and why populists of the left and the right are more nationalistic, militaristic, protectionist, and confrontational.
Highlights the power of conflict between the economic/political left and right having significant impact on: economies, markets, wealth and power.
Our Biggest Economic, Social, and Political Issue: The Two Economies-The Top 40% and the Bottom 60%
Highlights the dramatic difference between the "haves" and "have-nots"
China is becoming a effective competitor in Production, Trade, Technology, geopolitics, and world capital markets
Three Big Forces new to Dalio's lifetime and the questions asked:
The Long-Term Debt and Capital Markets Cycle: At no point in our lifetimes have interest rates been so low or negative on so much debt as they are as of this writing. The value of money and debt assets is being called into question by the supply-and-demand picture of them. In 2021 more than $16 Trillion of debt was at negative interest rates and an unusually large amonut of additional new debt will soon need to be sold to finance deficits. (Notes: This is happening "at the same time as huge pension and healthcare obligations loom large on the horizon.")
The internal Order and Disorder Cycle: Wealth, values, and political gaps are now larger than at any other point during Dalio's lifetime.
The External Order and Disorder Cycle: For the first time in my life, the United States is encountering a true rival power. (The Soviet Union was only a military rival, never a significant economic one.) China has become a rival power to the United States in most ways and is becoming strong in most ways at a faster rate. (Notes: If this trend continues China will be stronger than the US in most important ways that an empire becomes dominant - main areas of conflict: Trade, Technology, Geopolitics, Capital, and Economic/Political/Social Ideologies.
Major Currency Empires
US Empire (US Dollar)
British Empire (British Pound)
Dutch Empire (Dutch Guilder)
Six other important Currencies
Germany
France
Russia
Japan
China
India
From examining all these cases acreoss empires and cross time, I saw that the freat emires typically lasted roughly 250 years, give or take 150 years, with big economic, debt, and political cycles within them lasting about 50 to 100 years." -Ray Dalio
Timeless Principles
The swinging of conditions from one extreme to another in a cycle is the norm, not the exception.
The really big boom periods and the really big bust periods, like many things, come along about once in a lifetime and so they are surprising unless one has studied the patterns of history over many generations.
The future we encounter is likely to be very different from what most people expect.
No system of government, no economic system, no currency, and no empire lasts forever, yet almost everyone is surprised and ruined when they fail.
One's ability to anticipate and deal well with the future depends on ones understanding of the cause/effect relationships that make things change, and ones ability to understand these cause/effect relationships comes from studying how they have changed in the past.
When wealth and value gaps are large and there is an economic downturn, it is likely that there will be a lot of conflict about how to divide the pie.
To see the big picture, you can't focus on the details.