Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

by Ray Dalio

When debts become very large, and there is an economic downturn and the empire can no longer borrow the money necessary to repay its debts, this creates great domestic hardships and forces the country to choose between defaulting on its debts and printing a lot of new money. The country nearly always chooses to print a lot of new money, at first gradually and eventually massively. This devalues the currency and raises inflation. Typically at those times when the government has problems funding itself—at the same time as there are bad financial and economic conditions, and large wealth, values, and political gaps—there are great increases in internal conflict between the rich and poor and different ethnic, religious, and racial groups. This leads to political extremism that shows up as populism of the left or of the right. Those of the left seek to redistribute the wealth while those of the right seek to maintain the wealth in the hands of the rich. This is the “anti-capitalist phase,” when capitalism, capitalists, and the elites in general are blamed for the problems.