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

by Ray Dalio

Stage 1, when the new order begins and the new leadership consolidates power, which leads to… … Stage 2, when the resource-allocation systems and government bureaucracies are built and refined, which if done well leads to… … Stage 3, when there is peace and prosperity, which leads to… … Stage 4, when there are great excesses in spending and debt and the widening of wealth and political gaps, which leads to… … Stage 5, when there are very bad financial conditions and intense conflict, which leads to… … Stage 6, when there are civil wars/revolutions

America is run from the bottom up (e.g., democracy) and optimized for the individual; China is run from the top down and optimized for the collective.

The test of the real value of a currency is whether it is actively used and traded at the same exchange rate internationally as domestically. When there are capital controls that prevent the free exchange of a domestic currency internationally, that currency is more susceptible to being devalued.

when you see capital controls being put on a currency, especially when there is a big domestic debt problem, run from that currency.

we should expect all countries’ leaders to try to get the best balance between “state” (government influence and control of the economy) and “capitalism” (free-market control of the economy and capital markets) through the proper management and coordination of monetary and fiscal policies,

during periods of great crisis, more autocratic and less democratic leadership tends to be preferred.

History has shown that all countries’ success depends on sustaining the strengthening forces without producing the excesses that lead to countries’ declines. The really successful countries have been able to do that in a big way for 200–300 years. No country has been able to do it forever.

The technology war is much more serious than the trade/economic war because whoever wins the technology war will probably also win the military wars and all the other wars.

It will be important to see what these alliances will look like because throughout history, as we’ve seen, the most powerful country is typically taken down by alliances of countries that are less powerful but collectively stronger.

As history has shown, one of the biggest risks in a conflict is that access to one’s money/capital can be shut off. This can happen by a) the moves of one’s opponents and/or b) self-inflicted harmful actions (e.g., getting into too much debt and devaluing one’s money) that lead those who provide capital to not want to provide it. In Chapter 6, I reviewed classic capital war moves. Some of these are now being used and could be used in a more forceful way, so they have to be watched closely. The goal in a capital war is to cut the enemy off from capital because no money = no power.

stupid wars often happen as a result of a tit-for-tat escalation process in which responding to even small actions of an adversary is more important than being perceived as weak, especially when those on both sides don’t really understand the motivations of those on the other side.

Dealing with the future is all about 1) perceiving and adapting to what is happening, even if it can’t be anticipated; 2) coming up with probabilities for what might happen; and 3) knowing enough about what might happen to protect oneself against the unacceptable, even if one can’t do that perfectly.