Principles for Dealing with the Changing World Order

In the late 2010s Ray Dalio noticed a mix of conditions he had not seen in his career, though history had: huge debts and near-zero interest rates in all three major reserve currencies, deep wealth and political divisions, and a rising China challenging the United States. The book sets out what he calls the Big Cycle, in which empires rise on education, innovation and trade, become financial centers issuing the world's reserve currency, then borrow too much, print money, divide internally and lose ground to a challenger.

Dalio founded Bridgewater Associates in 1975 and built it into the world's largest hedge fund, and he wrote Principles and Principles for Navigating Big Debt Crises. The book grew out of Bridgewater research on centuries of data and is full of long-run charts.

In the New York Times, Andrew Ross Sorkin found it provocative and praised Dalio for drawing usable metrics out of broad history. Joakim Book of the American Institute for Economic Research said it shifted his skepticism about cycle theories. The Wall Street Journal's review, headlined Trouble Ahead, As Usual, was cooler. The history is a sweeping synthesis by an investor, not a scholar, and the cycle is a framework rather than a forecast.

It is for macro investors, allocators who worry about dollar debasement or US-China conflict, and anyone who wants Dalio's playbook for regime change in markets.

1. Reserve-currency status is the last advantage to go. A currency keeps its global role long after the economic strength behind it has faded, which lets the issuer borrow more than it otherwise could, until it can't.
2. Debt cycles end in money printing. When debts can't be repaid, central banks monetize them, and holders of cash and bonds in that currency lose purchasing power.
3. Internal conflict is a market variable. Wide wealth gaps and political polarization raise the odds of policy shocks, taxes on the rich and capital controls, and investors should price that in.
4. Rising powers challenge incumbents on many fronts. Trade, technology, capital access and geopolitics are all arenas of conflict, and a shooting war is only the most extreme.
5. Diversify across countries, currencies and asset classes. Because no empire stays on top, Dalio argues for spreading wealth so that no single country's decline can wipe it out.

The book is in three parts: a general model of how the world works, case histories of the last 500 years, and a look at the future. The long first part is broken out here in three steps.

1. The model: the Big Cycle. Dalio sets out the Big Cycle and the measures of national power he tracks, including education, innovation, competitiveness, output, share of trade, military strength, financial-center status and reserve currency. He also describes the long-term debt cycle and the changing value of money.
2. The model: order and disorder. Chapters on the internal cycle trace how wealth gaps and political polarization move societies from peace toward revolution or civil conflict. Chapters on the external cycle cover how rivalries between rising and leading powers escalate into trade, technology, capital and military wars.
3. The model: investing through the cycle. He explains how asset returns, currencies and wealth have behaved across these stages, and why diversified portfolios suffer when a reserve currency declines.
4. Five hundred years in case studies. Detailed chapters cover the rise and decline of the Dutch empire and the guilder, the British empire and the pound, the United States and the dollar, the rise of China and the renminbi, and US-China relations, including the several forms war between them can take.
5. The future. He projects the main forces forward, from debt and internal conflict to technology and acts of nature, and sets out how nations and investors can prepare, with probabilistic indicators rather than firm predictions.

A few years ago, renowned investor Ray Dalio began noticing a confluence of political and economic conditions he hadn’t encountered before in his fifty-year career. They included large debts and zero or near-zero interest rates in the world’s three major reserve currencies; significant wealth, political, and values divisions within countries; and emerging conflict between a rising world power (China) and the existing one (US). Seeking to explain the cause-effect relationships behind these conditions, he began a study of analogous historical times and discovered that such combinations of conditions were characteristic of periods of transition, such as the years between 1930 and 1945, in which wealth and power shifted in ways that reshaped the world order. Looking back across five hundred years of history and nine major empires—including the Dutch, the British, and the American—The Changing World Order puts into perspective the cycles and forces that have driven the successes and failures of all the world’s major countries throughout history. Dalio reveals the timeless and universal dynamics that were behind these shifts, while also offering practical principles for policymakers, business leaders, investors, and others operating in this environment.