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Ray Dalio
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February 25 - March 6, 2022
New York Times Bestseller Principles for Dealing with the Changing World Order Why Nations Succeed and Fail Ray Dalio Author of the #1 New York Times Bestseller Principles and Founder of The World’s Largest Hedge Fund Thank you for downloading this Simon & Schuster ebook. Get a FREE ebook when you join our mailing list. Plus, get updates on new releases, deals, recommended reads, and more from Simon & Schuster. Click below to sign up and see terms and conditions. CLICK HERE TO SIGN UP Already a subscriber? Provide your email again so we can register this ebook and send you more of what you
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London became the world’s financial center and the pound sterling the world’s reserve currency. In other words, Great Britain followed the classic Big Cycle steps of a rising empire.
In the early 1700s, France was a center of education and learning, a hub of the Enlightenment with famous thinkers like Voltaire and Montesquieu, and a home to a booming publishing industry,
Seven Years’ War (1756–63): France, allied with Austria, Sweden, and Russia, fought against Britain and Prussia over German territories and French and British colonies abroad, particularly in North America.
American Revolution (1775–83): France and Spain allied with the American revolutionary forces against the British government.
Napoleon’s invasion of Russia swung the tide of war against him. In the end, France was defeated. Great Britain and Russia were the primary victors.
After a war the victors come together and create a new world order.
the quadruple alliance of Great Britain, Austria, Prussia, and Russia reorganized the world order in their favor at the Congress of Vienna (1814–15), creating a system of checks and balances among the European powers that would more or less hold for the next century.
(Tsarist Russia remained largely autocratic).
the power equilibrium allowed the UK to avoid expensive military conflicts close to home and focus on trade and its colonies, a policy known as “splendid isolation,” which set the stage for its “Imperial Century.”
UK continued to expand abroad throughout the 19th century, eventually encompassing Canada, Australia, India, and large portions of Africa.
sustained period of innovation in which science as well as engineering played a major role, as synthetics and new alloys were produced and the use of new energy sources like petroleum and electricity exploded. This was when the telephone and the incandescent light bulb were developed and automobiles soon followed. Transportation, communications, and infrastructure improved, and the rise of corporate capitalism enhanced productivity.
Once unified, Germany experienced the classic virtuous cycle of a power on the rise.
By 1900, Germany’s GDP had surpassed Britain’s (excluding its empire), although the latter was still the leading trading nation in the world.
1918, the Spanish flu arrived, killing an estimated 20–50 million people around the world over the next two years.
In 1919, the victors—the US, Britain, France, Japan, and Italy—met at the Paris Peace Conference to lay out the new world order in the Treaty of Versailles.
The United States, now recognized as a leading power, played a big role in the negotiations.
US President Woodrow Wilson’s vision for a global governance system (the League of Nations, t...
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Great Depression coupled with the large wealth gaps led to a rise in populism and extremism in nearly every major country.
before all-out wars begin, there is typically about a decade of economic, technological, geopolitical, and capital skirmishing.
World War II, just two decades after World War I, was even more costly in lives and money.
Germany and Japan lost and the US, the UK, and the Soviet Union won, though economically the UK and the Soviet Union lost too and the US gained enormously in relative wealth.
the winners of the war got together and determined a new world order in 1945.
It took another 20 years for the British pound to fully lose its status as an international reserve currency.
After attempts to make the pound convertible failed in 1946–47, it was devalued by 30 percent against the dollar in 1949.
The US was the dominant power, which made it the de facto global police force.
The United Nations was established to resolve global disputes.
The most important financial elements of the new world order consisted of: The Bretton Woods monetary system, which established the dollar as the world’s reserve currency. The IMF and the World Bank, designed to support the new global financial system. New York as the new global financial center.
Schuman and Adenauer’s project, along with the rest of the EU’s founders, was to make war “not merely unthinkable, but materially impossible.”
it evolved into a customs union (in 1957, via the Treaty of Rome), opened up countries’ borders (in 1985, via the Schengen Agreement), and eventually agreed on the framework for a political and economic union, including a shared European citizenship (in 1992, via the Maastricht Treaty).
The Maastricht Treaty created the basis for a new common currency (the euro) and common economic rules,
The integration of its 27 member states (and their more than 400 million people), many of whom had been at war with one another in the past, is an impressive feat—one that puts the EU on a similar standing to the other great powers.
The wealth and income inequalities between and within its member countries have fueled the rise of populists, many of whom oppose the European Union, and who succeeded in causing the UK to leave it.
THE BIG CYCLE RISE AND DECLINE OF THE UNITED STATES AND THE DOLLAR
“God, grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference.”
Change
In March 2021 China released their 14th Five-Year Plan and targets for 2035. 11 If you haven’t read Sun Tzu’s The Art of War, I suggest you do to get the flavor of what I am referring to.
United States is the most powerful country but declining and China is close behind and rising quickly.
United States is exceptionally strong—i.e., its reserve currency status, military strength, economic output, innovation and technology, and education—and you can see in what ways it is weak—i.e., its internal conflicts, wealth gaps, indebtedness, and expected economic growth.
China is close behind the US in most other key areas and that it is relatively strong in its infrastructure and investment, innovation and technology, education, cost competitiveness, economic output, trade, military strength, and trade/capital flows, and relatively weak because of its reserve currency status, rule of law/corruption, and wealth gaps.
Despite all the analytical work I do, I know that the unknown is still much greater than the known.
While history can be told pretty precisely, the future is exactly the opposite. I am not aware of a single case of the future being foretold accurately in any detail.
Know all the possibilities, think about the worst-case scenarios, and then find ways to eliminate the intolerable ones.
Diversify. In addition to making sure I’ve covered all the worst-case scenarios I can think of, I try to cover those I can’t think of by diversifying well. I learned the math of it and I’m drawn to it instinctively. Essentially, if I have a bunch of bets that are attractive but unrelated, I can reduce my risks by up to 80 percent without reducing my upside at all.
There is a Chinese saying that “a smart rabbit has three burrows,” meaning three places to go to in case any one of them becomes dangerous. This principle has saved many people’s lives when things got bad, and it’s one of my most important principles.
Put deferred gratification ahead of immediate gratification so you will be better off in the future. Triangulate among the smartest people possible. I tag along with the smartest people I can find, so I can stress test my thinking and learn from them.
May the Force of Evolution be with you,
The United States also has the strongest position in education among major countries. The United States has a large share of the world’s bachelor’s degrees (20 percent).
key strengths of the Eurozone are its importance to global trade and its reserve currency status. Its weaknesses are its people’s lower-than-average work ethic and low self-sufficiency and its relatively poor allocation of labor and capital.
India is in a highly favorable position in its economic and financial cycles,
We net this against its weak relative position in education, its bad reading on innovation and technology, and its lack of reserve currency status. On years of education, India is bad—students have on average 5.8 years of education versus 11.5 in the average major country.
