The world is on the "edge of danger" and may face three "seismic" changes, says Dalio in China
Speaking at the China Development Forum 2023, Rae Dalio, founder, chief investment officer mentor and board member of Bridgewater, said the monetization of huge debts, the huge internal conflicts caused by the divide between wealth and values, and the conflict between international powers are three factors that "are driving all the current situations.
According to Dalio, the world is on the "edge of danger" and could face three "seismic" changes, "if they happen, we could witness something we have not seen in our lifetime, but which has happened many times in history. These three forces, which began several years ago, have reached a crisis point and are driving all of the current events."
The three dramatic changes, as Dalio calls them, are, first, the monetization of huge debts, where central banks print money and issue currency to buy these debts, second, the huge internal conflict caused by the divide in wealth and values, and third, the conflict between international powers. According to Dalio, all three of these factors are now emerging to the greatest extent since 1930-1945.
Dalio believes that many indicators such as real per capita income, per capita life expectancy, and nutritional levels will improve significantly in the long run due to increases in productivity and especially technology. The evolution of this upward trend is characterized by huge cyclical fluctuations, which consist of short cycles that interact with each other to form large cycles. These large cycles are the so-called "good years" and "bad years." In addition, the events that lead to such large cycles do not occur according to a timeline, but are determined by causality, so that their occurrence is not predetermined, but manageable.
Dalio further emphasizes that many times, the accumulation of many short cycles to form large long cycles leads to debt write-downs and monetization of huge amounts of debt when debt ratios rise and liabilities become too large to sustain. At the same time, along with financial and economic cycles, there are political cycles within countries, and geopolitical cycles between countries, and history shows that when these three forces are superimposed simultaneously, they lead to turbulent transitions, often resulting in dramatic changes in the domestic and world order of great magnitude.
Dalio points out that since 1945 - since the establishment of the last new world order, the monetary order, which can also be called the world order of the United States and the dollar - it has gone through 12.5 short cycles until now, accumulating to form a big debt cycle, which is now quite high as a percentage of GDP, when Central banks, including the Federal Reserve, then began to tighten monetary policy to deal with inflation, causing cracks to begin to occur in the market, and the economy began to weaken.
According to Dalio, we are now entering a big international geopolitical cycle. "What I hope is that there will be wisdom, restraint and understanding in the world and that the world will continue to be peaceful and prosperous."
