Principles for Dealing with the Changing World Order Quotes

“Up until around 1350, lending with an interest rate was prohibited by both Christianity and Islam—and in Judaism it was banned within the Jewish community—because of the terrible problems it caused, with human nature leading people to borrow more than they could pay back, which created tensions and often violence between borrowers and lenders. As a result of this lack of lending, currency was “hard” (gold and silver). A century or so later, in the Age of Exploration, explorers went around the world collecting gold and silver and other hard assets to make more money. That’s how the greatest fortunes were built at the time. The explorers and those who backed them split the profits. It was an effective incentive-based system for getting rich. The alchemy of lending as we know it today was first created in Italy around 1350. Rules for lending changed and new types of money were made: cash deposits, bonds, and stocks that looked pretty much like we know them today. Wealth became promises to deliver money—what I call “financial wealth.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“Before there is a shooting war there is usually an economic war. As is also typical, before all-out wars are declared there is about a decade of economic, technological, geopolitical, and capital wars, during which the conflicting powers intimidate each other, testing the limits of each other’s power.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“Consider the following three big choices that a country has to make when selecting its approach to governance: 1) bottom-up (democratic) or top-down (autocratic) decision making, 2) capitalist or communist (with socialist in the middle) ownership of production, and 3) individualistic (which treats the well-being of the individual with paramount importance) or collectivist (which treats the well-being of the whole with paramount importance).”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“The global depression that followed the Great Crash of 1929 led to almost all countries having big internal conflicts over wealth. This caused them to turn to more populist, autocratic, nationalistic, and militaristic leaders and policies. These moves were either to the right or to the left and occurred in varying degrees, according to the countries’ circumstances and the strengths of their democratic or autocratic traditions. In Germany, Japan, Italy, and Spain, extremely bad economic circumstances and less well-established democratic traditions led to extreme internal conflicts and a turn to populist/autocratic leaders of the right (i.e., fascists), just as at different points in time the Soviet Union and China, which also endured extreme circumstances and had no experience with democracy, turned to populist/autocratic leaders of the left (i.e., communists). The US and the UK had much stronger democratic traditions and less severe economic conditions, so they became more populist and autocratic than they had been, but not nearly as much as other nations.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“The greatest risk of military war is when both parties have 1) military powers that are roughly comparable and 2) irreconcilable and existential differences. As of this writing, the most potentially explosive conflict is that between the United States and China over Taiwan.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“While the inherited assets and liabilities of a country are very important, history has shown that the way people are with themselves and others is the most important determinant. By that I mean whether they hold themselves to high standards of behavior, whether they are self-disciplined, and whether they are civil with others in order to be productive members of their societies is most important. These qualities plus flexibility and resilience (i.e., the capacity to adapt to both “bad” and “good” things) allows people to minimize setbacks and maximize opportunities.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“Because the US Constitution doesn’t make education a federal government responsibility, it has predominantly been a state and local responsibility with school funding coming from revenue raised by local taxes in cities and towns. Though it varies from state to state, typically those children in richer towns in richer states receive a much better education than those in poorer towns in poorer states.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“This period of decline is exemplified by decadent leaders such as the notorious Emperor Nero (who used a citywide fire in Rome to confiscate land to build an expansive palace), Louis XIV (who expanded the Palace of Versailles while productivity fell and people endured hardships at the height of his power), and the Ming Dynasty’s Wanli Emperor (who withdrew from actively governing and focused on the construction of his own immense tomb).”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“On August 15, 1971, President Nixon ended the Bretton Woods monetary system, devaluing the dollar and leaving the monetary system in which the dollar was backed by gold and instituting a fiat monetary system. (I will cover this episode in more detail in Chapter 11.)”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“In the 1860s, during its civil war, the US suspended gold convertibility and printed paper money (known as “greenbacks”) to help monetize war debts. Around the time the US returned to its gold peg in the mid-1870s, a number of other countries joined the gold standard; most currencies remained fixed against it until World War I. Major exceptions were Japan (which was on a silver-linked standard until the 1890s, which led its exchange rate to devalue against gold as silver prices fell during this period) and Spain, which frequently suspended convertibility to support large fiscal deficits. During World War I, warring countries ran enormous deficits that were funded by central banks’ printing and lending of money. Gold served as money in foreign transactions, as international trust (and hence credit) was lacking. When the war ended, a new monetary order was created with gold and the winning countries’ currencies, which were tied to gold. Still, between 1919 and 1922 several European countries, especially those that lost the war, were forced to print and devalue their currencies. The German mark and German mark debt sank between 1920 and 1923. Some of the winners of the war also had debts that had to be devalued to create a new start. With debt, domestic political, and international geopolitical restructurings done, the 1920s boomed, particularly in the US, inflating a debt bubble. The debt bubble burst in 1929, requiring central banks to print money and devalue it throughout the 1930s. More money printing and more money devaluations were required during World War II to fund military spending. In 1944–45, as the war ended, a new monetary system that linked the dollar to gold and other currencies to the dollar was created. The currencies and debts of Germany, Japan, and Italy, as well as those of China and a number of other countries, were quickly and totally destroyed, while those of most winners of the war were slowly but still substantially depreciated. This monetary system stayed in place until the late 1960s. In 1968–73 (most importantly in 1971), excessive spending and debt creation (especially by the US) required breaking the dollar’s link to gold because the claims on gold that were being turned in were far greater than the amount of gold available to redeem them. That led to a dollar-based fiat monetary system, which allowed the big increase in dollar-denominated money and credit that fueled the inflation of the 1970s and led to the debt crisis of the 1980s. Since 2000, the value of money has fallen in relation to the value of gold due to money and credit creation and because interest rates have been low in relation to inflation rates. Because the monetary system has been free-floating, it hasn’t experienced the abrupt breaks it did in the past; the devaluation has been more gradual and continuous. Low, and in some cases negative, interest rates have not provided compensation for the increasing amount of money and credit and the resulting (albeit low) inflation.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“When credit cycles reach their limit, it is the logical and classic response for central governments and their central banks to create a lot of debt and print money that will be spent on goods, services, and investment assets in order to keep the economy moving. That was done during the 2008 debt crisis, when interest rates could no longer be lowered because they had already hit 0 percent. It also happened in a big way in 2020 in response to the plunge triggered by the COVID pandemic. That was also done in response to the 1929–32 debt crisis, when interest rates had similarly been driven to 0 percent. At the time I am writing this, the creation of debt and money has been happening in amounts greater than at any time since World War II.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“The shift from a system in which the debt notes are convertible to a tangible asset (e.g., gold and silver) at a fixed rate to a fiat monetary system in which there is no such convertibility last happened in the US on the evening of August 15, 1971. As I mentioned earlier, I was watching on TV when President Nixon told the world that the dollar would no longer be tied to gold. I thought there would be pandemonium with stocks falling. Instead, they rose. Because I had never seen a devaluation before, I didn’t understand how it works.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“A bank that can’t deliver enough hard money to meet the claims being made on it is in trouble whether it is a private bank or a central bank, though central banks have more options than private banks. That’s because a private bank can’t print the money or change the laws to make it easier to pay their debts, while some central banks can. Private banks must either default or get bailed out by the government when they get into trouble, while central banks can devalue their claims (e.g., pay back 50–70 percent) if their debts are denominated in their national currency. If the debt is denominated in a currency that they can’t print, then they too must ultimately default.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“if the ratio of claims on money (debt assets) to the amount of “hard” money there is and the quantity of goods and services there is to buy are too high, the bank is in a bind that it can’t get out of. It simply doesn’t have enough “hard” money to meet the claims.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“Trouble approaches when there isn’t enough income to service one’s debts, or when the amount of claims people are holding in the expectation that they can sell them to get money to buy goods and services increases faster than the amount of goods and services by an amount that makes the conversion from that debt asset (e.g., a bond) impossible. These two problems tend to come together.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“in 1717 the British East India Company effectively brought together financial capital, people with commercial capabilities, and people with military capabilities to force India’s Mughal emperor to trade with them, which was the first step toward the British colonization of India, the fall of the Mughal Empire in the 18th century, and then its complete failure in the 19th century, when the British exiled the emperor and executed his children after the 1857 Indian Rebellion. The British did these things because they had the wealth and power to do them in pursuit of more wealth and power.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“Typically, the big cycle in the capital markets, along with cycles in wealth, values, and class divisions, drive the political left/right cycle because these create the motivations for political change. When capital markets and economies are booming, wealth gaps typically increase. While some societies succeed at striking a relatively sensible and steady balance between left and right, more frequently we see cyclical swings between norms. These swings typically occur throughout empires’ rises and declines, in roughly 10-year cycles. The big economic crises that mark the end of the Big Cycle often herald revolutions. For more, see the addendum to this chapter.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“The Big Multigenerational Psychological Cycle. Different generations think differently because of their different experiences, which leads them to make their decisions differently, which affects what happens to them and to subsequent generations. This is reflected in the adage “from shirtsleeves to shirtsleeves in three generations.” Three generations is also roughly the length of time of a typical long-term debt cycle. However, history shows that when these cycles are handled well—i.e., strong human capital is maintained over many generations—they can go on for many generations. This multigenerational cycle takes place over several stages that are described in the addendum to this chapter.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“While the inherited assets and liabilities of a country are very important, history has shown that the way people are with themselves and others is the most important determinant. By that I mean whether they hold themselves to high standards of behavior, whether they are self-disciplined, and whether they are civil with others in order to be productive members of their societies is most important.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“you can’t understand the success of the United States without recognizing that it is separated from European and Asian powers by two oceans and blessed with most of the minerals, metals, and other natural resources it needs to be prosperous and self-sufficient, including the topsoil, water, and temperate climate that allows it to produce most of its own food. These factors enabled it to be largely isolationist until a little more than a century ago while investing in education, infrastructure, and innovation in ways that made it strong.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“As I see it, the determinants and dynamics that drive events fall into two types: 1. Inherited Determinants: They include a country’s geography, geology, and acts of nature such as weather and diseases. 2. Human Capital Determinants: They are the ways people are with themselves and each other. They are driven by human nature and different cultures (which differentiate their approaches).”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“If I were to add two more determinants to keep in mind, they would be 4) the pace of innovation and technological development to solve problems and make improvements and 5) acts of nature, most importantly droughts, floods, and diseases. That is because innovation and technological advances can solve most problems and further evolution, and acts of nature such as droughts, floods, and diseases have had enormous impacts throughout history. These are the five most important forces, which I call the “Big Five,” so when they are moving in the same direction—toward improving or toward worsening—most everything else follows.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“Based on what we have been seeing, the United States and China are clearly in four types of war (trade/economic war, technology war, capital war, and geopolitical war), though not intensely but they are intensifying. They are not yet in the fifth type of war (military war). As shown in the previous cases, in particular the 1930–1945 case, these four types of wars precede military wars by about five to 10 years. Though the risks of military war seem relatively low, they are increasing.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“…To not speak honestly would cost me my self respect.

I’m not afraid of criticism; I welcome it. What I’m passing along here is just the latest iteration of my learning process, which is to:
Develop my perspectives through direct experiences and research, to write up what I learn, to stress test it by showing it to smart people, to explore our differences if and when we have them, to evolve my thinking some more, and, to do that over-and-over again, until I die.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“As a result of personal losses and the losses of clients, I had to let everyone in my fledgling company Bridgewater Associates go, and was so broke, I had to borrow $4000 from my dad to help pay my family’s bills. At the same time, this was one of the best things that ever happened to me, because it changed my whole approach to decision-making.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“That brings me to my next principle: when in doubt, get out—if you don’t want to be in a civil war or a war, you should get out while the getting is good. This is typically late in Stage 5. History has shown that when things get bad, the doors typically close for people who want to leave. The same is true for investments and money as countries introduce capital controls and other measures during such times.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“Their system of governance is more like what is typical in big companies, especially multigenerational companies, so they wonder why it is hard for Americans and other Westerners to understand the rationale for the Chinese system following this approach and to see the challenges of the democratic decision-making process as the Chinese see them.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“To have peaceful coexistence Americans must understand that the Chinese believe that their values and their approaches to living out these values are best, as much as Americans believe their American values and their ways of living them out are best.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“area is marked by a “nine-dash line” on a World War II era map presented by China; it covers offshore waters east of Vietnam, north of Malaysia, and west of the Philippines, which include a bunch of islands, are important for shipping that China needs, and are believed to have undiscovered oil reserves, which I imagine China would love to have given its huge imported oil needs and the risk of oil imports from the Middle East being cut off.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

“As a result, the Chinese are more humble, respectful, and rules-bound, while Americans are more arrogant, egalitarian, and rules-averse. I’ve observed that while the Chinese are more interested in asking questions and learning, Americans are more interested in telling you what they think.”
― Ray Dalio, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail