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

by Ray Dalio

As is classic, periods of prosperity financed by debt growth lead to debt bubbles and large wealth gaps. In the US, the bubble burst in 2008 (as it did in 1929), and the world economy contracted and middle-class Americans and those in other countries were hurt (as in 1929–32). Interest rates were pushed down to 0 percent (as in 1931), which still wasn’t enough easing, so central banks printed a lot of money and bought a lot of financial assets after 2008 (like in 1934), which drove up their prices in most countries starting in 2009 (as happened in 1933–36). This benefited the “haves” (people who had financial assets) more than the “have-nots” (those without them) so the wealth gaps grew wider still (as they did in the 1933–38 period). The “have-nots,” especially those whose jobs were being taken by the Chinese and immigrants, began to rise up against the elites who were benefiting from globalization. As is typically the case when economic bad times coincide with large wealth gaps, populism and nationalism grew around the world (as they also did in the 1930s). That is when the threat the rising powers pose becomes more apparent to the leading powers. The era of peace, prosperity, and globalization began to wane, giving way to an era of conflicts between the rich and the poor within countries and between the rising country (China) and the dominant world power (the US).