The Changing World Order: How Countries Go Broke - Ray Dalio - #976

60 years of global macro investing in regulations. Thank you. Yeah. But Richard just celebrated its 50th year and I just celebrated passing it along.

So yeah, thank you. Yeah. Why after a lot of time, why did you get interested in a changing world? And how countries go broke?

Like why did global macro investor do that? Well, I'll tell you a story. When I was between college and Harvard Business School in 1971, I was clerking on the floor of the New York Stock Exchange. And on August 15th, 1971, President Nixon gets on the television and he says, you know, our promises to allow you to turn in those dollars to go.

Well, we're not going to stick to them. That wasn't his wording exactly. But money as we knew it, which was gold and the money was we now know it, which is fiat money was like Jack's. He didn't, we're wearing very good money.

And so I walked on the floor of the New York Stock Exchange the next morning, clerking and I figured the market would be down a lot and it turned out it was up a lot and I haven't been through a evaluation before. So I studied history and I found out that on March 15th or I think it was March 3rd, 1933, Roosevelt did the exact same thing on the radio. And I studied it. And as a result of studying that, I understood the mechanics of that by the evaluation and that kind of fact.

And I studied the great depression because I learned was that it may not have happened in my lifetime before these important things, but I need to understand them. So I studied the great depression and that allowed me to make a lot of money to very well in anticipating the 2008 financial crisis. And then to also the European debt crisis from 2010 to 2015. So I knew that things may have happened before.

So I then needed to study. So there are things that are going on now that happen in our lifetime before. And I figured that I needed to study that. What causes the rise and decline of reserve currency or what causes the rise and decline of a great power?

And so I needed to study the last 500 years because a rise and decline of reserve currency or a great power to take arcs. There's a British power before that there was a Dutch and so on. And I needed to study that. I studied that 500 years.

And then I saw that the same things happen over and over again for the same reasons. And now I'm at a stage in my life or what I want to do is pass along whatever I know to make it available to other people. I'm no longer focused in and keeping it quiet. So that's why I studied that by the year.

And that's why I wrote the before the last one, the book before the last one is called principles for dealing with the changing world order. And if you read it, you see the pattern. And by the way, I also put out a free video for anybody. It's called a YouTube changing world order.

It's free. You can listen to it. So anyway, that's how I came about all this. And I need to study.

You need to study the mechanics of things that have happened before because a lot of what's happening now is most similar to what has happened before our life. I think it's an assumption that the modern world is still different. Technology, sophistication, interconnectedness, globalization. There is a sense that, well, how applicable, a lessons of the past really?

Like are we going to go back to medieval Europe, Ray? Is that what we're going to take a lessons from? And yet, based on your investing track record, it seems like you can predict at least a bit of the future with what's happened in the past. It's like a life cycle.

It's like a disease or a process. And the only thing I could tell you is, you're wrong. If you believe that there were times in the past that were more similar to what you're using. I think you've got to know that now, right?

I mean, as we are seeing a different domestic order. Okay, you've never seen what's going on before. But it's very similar to the past. And I'd like a cycle.

Like a life cycle, you're born at a middle age, maybe then you've got marriage, you have kids, you've got older, you've got a profession, you get sick, you know, or something. There's a cycle that goes over and over again. And these things. But anyway, you can take it a little bit.

It's up to you. And so I can tell you, I never would have understood what happened in 2008. For example, 2008 was the first time that we had a debt crisis and interest rates at zero since 1933. Okay.

So what happens when you hit zero? The only way you would have seen what happened is what the sensible thing to do was on a day to be. It's the first time it happened in response to that. The last time it happened was 1933.

Okay. Because what do you do when you get interest rates and they hit zero and you can't lower that? Okay. Well, you can take it on what I'm leaving or saying.

there are five major forces and that repeat over and over again and interact them. If you like, I'll describe them. And but also you have to realize that all wonders, all monetary orders, all political orders, and all geopolitical orders, number of systems have broken down throughout history. So they're breaking down in predictable ways that you know what you're looking for.

Right. Okay. But at least don't be ignorant. Okay.

About how do they break down? What happened? What happened? The day.

Okay. Okay. Okay. I can take you through the debt numbers.

I'm sure we'll discuss the government debt numbers. But I mean, just in an nutshell, we're spending the US government spending $7 trillion a year, we're taking in five trillion dollars a year. We're piling on the debt. That means you have to sell the debt.

Somebody's got to buy the debt. There's a dynamic here in a mechanics. I described that in my recent books. I just want to pass along the mechanics.

You can read it. You can take it or leave it as you like. But there's a mechanics here. And I think you got to understand the mechanics.

And the last time it happened, I'll describe that mechanics in a bit. But yeah. So anyway, it's up to you. I'm passing along.

You do what you want with it. Yeah. Okay. Let's take these courses.

Okay. So five big forces. I'm getting a summary. There's a debt cycle.

In certain times, you wipe out the debts. So for example, the new monetary order with World War II began 1945. You pretty much wipe out the debts. You start again.

And then debt rises relative to incomes. So there's a debt cycle that will get into, I'm sure in a minute, that I won't digress into because I want to get a five out before we digress into any one of them. But when debt rises relative to your income, debt service payments rise relative to your income. It squeezes out your spending.

And because you have more and more to go to debt service, and you have a particular dynamic, we'll get into a minute. But there's a debt cycle. There is a with that debt cycle. Oh, I mean, there's usually a political, a political between the left and the right.

And as that cycle progresses, there are greater wealth gaps, there are greater values gaps. And we start to see populism of the left and the right become almost a war-like situation. That threatens the order and threatens the message of the order and so on. So what we're seeing politically now has not happened in our lifetime.

It's surprising to people because they haven't seen it before. Okay. But it has happened. If you look at the 30s and you look around the world, it's happened repeatedly for basically the same reason.

So the first is the debt money economy cycle. The second is this political cycle, left-right cycle and conflict cycle. The third is the geopolitical world order. Okay.

So for example, 1945, we have a war and then you have to have a new system, to come country deal with each other. So there's a geopolitical cycle. They begin a new geopolitical cycle. The dominant power leads how that operates.

The US was a dominant power. So they had the world's reserve currency. They are a dominant and we create the multilateral world order as we know the system by which countries interact with each other. And that's a cycle.

And we can see that that system is now breaking down. It's certainly changing. Okay. In ways that haven't happened in our lifetime that happened repeatedly through history.

Okay. So those three cycles, those three orders which are intertwined with each other are going through those cycles. In addition, if you look at history, drought floods and pandemics or acts of nature were more disruptive. They're not necessarily cyclical or maybe they aren't.

But anyway, what happens is as drought's, drought's, what's in pandemics, I feel more people than more, and it's a couple more orders than the other factors combined. That's just a fact. It's measured in the book. And then number five as a force, big force throughout history is man's inventiveness, a better ways of doing things, particularly new technologies.

And certainly that's a great force now with AI and many technologies that we're developing. And that's why, on the cover of the book and whenever I have a chart that of how it looks to me. And that chart sort of looks like I'm drawing it now. It looks something like this, that there are these cycles of that go up and down, that are of economy and with that politics.

The economy, we'll talk about them as being expansions and concessions. And with those have been bull markets and their markets. And they've been 12 and a half of those since 1945. Okay.

Then you have these periods like the great conflict periods, the war years, they break down to the system and so on. And then you begin a new one in those cycles. Through that wall, there is the advances of technology. It's not primarily cyclical because knowledge accumulates.

But it doesn't go through these big cycles. There are faster rates sometimes. Usually in the booms, there are faster rates of discovery and so on. And that is literally kind of how it works.

Right? So now when we're going to talk about whatever you want to talk about, whether it's dad or politics or geopolitics or anything, technology, it falls under one of those categories and they're interrelated. So for example, now when we think about the debt situation, we also think about the AI and we'll that have effect on productivity. So anything we're going to talk about is going to fall under one of those five.

And they're interrelated. And if we understand the patterns of history and then also what makes logical sense, you know, then that's a good conversation. Anyway, we'll see how it goes. We'll go wherever you want to go.

But we will find that it'll be one of those and that they're interdependence and each one of those is progressing almost like a machine that has this logical pattern. That doesn't mean identically. That doesn't mean you should be ignorant of what's happening new and now and think about is that different? You shouldn't be stuck into a rigid notion, but you should have that frame of reference, along with whatever new information you want.

And it's dead and wrong to believe that, oh, that's all. Doesn't matter because what happens when countries run out of money? Okay, we can run out of money. I'll describe how we can run out of money or lose a reserve currency status.

Right now, for example, money, as we know it is threatened. That money has to be a sore hold of wealth. In other words, it's a medium of exchange and a sore hold of wealth. Okay, so today, there's very good reason to say is money and effective sore hold of wealth.

Okay, so what does that mean? So you're going to history that's happened many times. What do you do with your government and you face that situation? Well, let's look at what governments did when they face that situation.

So learn, how can you be against learning? I really want to learn about this that cycle thing. I keep on hearing about debt money, debt money economy, how it works. Can you, this can be very difficult to be too.

Can you imagine I made it just for a moment? And trying to explain to me how the debt money cycle works. Who am I? And it really is simple.

We'll see if you can stress just how simple I am, but let's see if you can. Okay, the system works like the circulatory system of your body that brings nutrients in the form of buying power by credit. It brings credit and that credit produces debt. However, when it produces that debt, if you earn enough money because of that credit, it will pay back that credit and you will have a healthy system.

If it doesn't, it will build up debt and debt service payments like plaque in the arteries of of your system that will squeeze out other spending. That is true for you. That's true for governments. Okay, the only difference between your finances or company finances or the government's finances is the government has the ability to print money and pay off those debts and it has the ability to take money from others by taxes.

But the economics work the same. So a healthy system and you can watch it. Almost like a doctor watching an MRI, you can see that happening and I'll take you through it for the US government. I'll explain it, but that is now happening and you see the debt service squeezing out other spending.

I'll take it through a minute. The second thing to know about that is when you run a deficit or have a lot of debt, you have to sell that debt to a buyer. So there's a supply and a demand for debt. One of the assets are not the man's assets and if they believe that that's a good store hold of wealth and they get an adequate real return, they will hold that debt and so on.

If they believe that it's not, not only will they not buy the new debt, but they may sell the old debt. And when they sell the old debt, the selling is greater relative to the buying. And like anything when the selling is greater relative to the buying, the price goes down and the interest rate goes up and that's to ration debt. Okay, so what the central banks do?

Okay, they print money and buy the debt. Like our central banks did. Okay, and they always do that and so that's part of the mechanics. So that is the dynamic.

So now let's look at the United States government. The United States government this year will spend about $7 trillion and it will take in about $5 trillion. Okay, so it's spending 40% more than it is taking in and because it's spent a lot more than it is taken in for a long time, it has a lot of debt. It's debt is about six times what it takes in every year and it can't really cut that on expenses because some of those expenses are the things you are commitments.

Like you have to pay off the debt with the interest rate and the debt roll over the debt service is huge. So there's a deficit seven minus five equals two trillion. Okay, one trillion of that is interest that keeps building up because you build up the debt. In addition, you have to roll over $9 trillion worth of debt that's inspiring.

So that's 10 trillion. What's exciting mean? It's rolling off. It's maturing.

And so I got to sell, I got to sell to replace that. And then in addition to that, so we have the one interest, one trillion interest, nine trillion, it's firing plus the new two, makes 12 trillion at the sale. Okay, the buyers have a lot of these debt assets and are not for various reasons, not eager to buy that debt. International buyers don't want to buy that debt because, look, who are the biggest international buyers?

Chinese and Japanese, for example, okay, we're at the brink of war of the geopolitical situation. And anyway, they've got too much in everybody's worried about it. Okay, so now, okay, I'm going to pause here. I could go on at length, but you asked me to describe the situation clearly in a way that could be understood.

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I go to the link in the description below by heading to functionhealth.com slash monomers and that's functionhealth.com slash monomers. I mean, the obvious question is if you are spending more than you are taking in and you already have these existing obligations that are growing and everybody in the sense how interest works that it piles on top, this just seems to be an intractable problem. It's a one way journey towards signing straight into a wall and I just don't know what that looks like for a country. What does that mean?

I understand what it means for an individual or company to your bankrupt, but I don't know what it means for a country to not be able to pay its debts. What it means by a country is for a country, as I say, it's the same as it is for an individual, which means you either don't pay the debt or you exert pressure on others to take the debt, even though they don't want it, history showing this or you print money and you devalue money. So, you know, that's the 70s was a good example. I said August 15, 1971, I'm clicking on the floor of the New York Stock Exchange and they didn't have an issue.

Too many claims on the real money, which was gold then. So too much claims on that. They couldn't meet those claims. So they said, I'm not going to do that and I will print the money and you have the 70s.

Or a good example would be 2020 and 2021. We have COVID and they wanted to send out a lot of money. They sent out about twice as much money as it was loss of income. The first go around and then they sent out a lot more money and then what happened?

They got that potential bank printed money and bought the debt. They monetized the debt. Okay. So that's what you do.

Okay. That's what Japan did, for example, Japan has its big debt. And what they did is they forced interest rates down to 3% below US interest rates. The currency depreciated by 4% a year.

And so the holder of the bonds lost 7% a year relative to US bonds and they lost like 65% in relation to gold. And that's why we are now in a position where, okay, what is money? What is the store holder wealth? Okay.

So that's the dynamic. Okay. That's in the canvas. I have to assume that's very dangerous decision to be in.

More people thought questioning for you money. There's because also the dollar is the world's reserve currency. And the treasury market is the basis of all markets. It's the foundation.

All markets trade off the treasury market. Credit markets, credits, reds off the treasury market. Equities are off the treasury market and so on. And the reserve currency is the basis of savings.

It's the basis of everything. And also it's critical for American power to have the world's reserve currency because when you have the world's reserve currency, it's easier to sell your debt. But that's one of the problems because it's easier to serve your debt, sell your debt. Then you get more debt because you're incentivized to keep going.

You get debt. So anyway, that's where we are on the debt money thing. And then on the, we can go beyond that. But if we're taking the internal conflict thing, it's always been the case.

That capitalism is fantastic for creating those opportunities and productivity and so on. And at the same time, it produces large gaps in productivity, income and wealth and values. So you can see that the cycle related to that is that there becomes greater conflicts. And then in that democracy and whatever, it's no longer the belief in the rules and compromise.

It's more like who's going to fight for me. But this fight for me and when, because those other people are problems, whether they're left or right, they have the problems. And then there's a question, you know, oh, I can't trust the judgment of the Supreme Court because the Supreme Court is political because it's been sacked by that. I'm not going to let that stand in the way of losing.

And so you then come into an arrow that is different from the arrow that I was used to operating in and believe it was essential. In other words rule of law, the system is fair. I come in, we have a system, it makes a judgment. We abide by the system.

Okay. It's not like that as much. Okay. There was left and right and it's not like a compromise.

It's kind of a win-and-well-cost kind of thing. While you have the politics, by the way, if I go back in this record, recount how this happened. In the 1860s, we started the second industrial revolution. There was great prosperity.

There was accumulation of debt. As we turn the century 1900, and we go into 1900, we have what was called the Gilded Age and the Robert Barrett's, they were called those rich equivalent billionaires now. And it was resentment built up. And then you have the panic, you had a debt problem in 1907, the panic of 1907.

And then you have the great conflict that also led to the first world war as a rising power challenge. So anyway, I'm rambling too much, but I just wanted to thank that picture. I'm interested in how much politics reflected by economics, I think. People like me just lay at the feet of culture and human nature and individual personalities and rhetoric, media.

We lay the political outcomes and the political landscape of those things. But it seems like just adjusting the back and the better explanation, almost directly by just where we're economically. Well, economics is a big deal for a lot of people. And when you have bad times, they want to, and then there are values.

What is the left value and what is the right value? And then you have that conflict. There are reasons. It's always shown.

In the simplest sense, you know that if you have a bad economy, there's a high risk that the existing administration will be thrown out of power. I mean, we've seen that in my comparison to big problems. We see that all the time. We know that the political cycle and the economics cycle are tied.

Always, right? It's a good indicator. If the economy's saying, and you're going into a election, it's a good indicator that they'll be thrown out of power. I mean, not perfect, but it is.

Okay. Now get that. Now get real bad. Okay.

And think about the differences now. If you look at the boom that is taking place, particularly, let's say, very much related to the unicorns and the inventiveness of new technologies and so on, roughly 3 million people, which is 1% of the population, are working at those places. And they're having a boom. Unicorns is a boom going on.

It's fantastic. If you're in that neighborhood, it's fantastic. At the same time, 60% of the population has below a six-grade reading level and hasn't had income growth and so on. And increasingly, productivity is passing the bike.

Technology is going to pass the bike. You look at the deterioration of homelessness in cities. And I mean, you see it. You know, almost any major city.

You see the $50 or $100 million apartment and you see homelessness and that, but you take a lot of 60%. Oh, you know, I can give you examples of where I live and I drive 15 minutes away. And I'm living right in Connecticut. My wife works to help that population.

What are called disengagement disconnected. Young people. That they dropped out of high school or failing high school or something like that. And it's never going to get a job.

And so I'm living around 15 minutes off the road is rich work in Connecticut, which is the second highest per capita income, safe in the country. 22% of the high school students have either dropped out of high school or failing with rates failing with absentee rates of greater than 25%. So 22% are having to drop that high school or are failing high school with absentee rates of greater than 25%. They live in neighborhoods where there are drunks, guns, shootings, young women having births at 15 years old and so on.

There's not a bottom in terms of that. It's created in Connecticut, $700 million a year is spent on car serrations because of that. Okay. There are these different worlds going on.

Anyway, I'm rambling too much. But I'm just saying that's what's going on. Right. And this disparity, the tension between those two groups leads to a desire to populism.

Is that the mechanism happens? Of course. And I mean, it's personal. There's a tragedy, productivity, like everything works on productivity.

If you want income, you're not going to get anywhere by just giving away money. You have to make people productive. So being productive and having income and having a decent life is very important to the well-being of the society. I know if I was to grow up in that, if I had to raise my kids and sell them to that schools, I'd be revolutionary.

With the system. I feel not, but I doubt that you or anyone on this call practically would say I would put my kids in that environment in those school systems. I feel like it's a town. I'm not saying there's an easy way to solve this problem, but you never get through these two worlds.

And that's the bottom of the population. But it's like a disease that when you walk through our cities, you see. And that reliably results in the same kind of desires culturally, especially politically, that influences the people that are like the sort of policies that are productive and attractive to people. And I mean, look around you and see what is going on with the mayor race in New York City.

Yeah. Yeah. And I think it's interesting about that one is the people that are in support is very much sort of a luxury beliefs situation where a lot of, it's very aspirational for somebody in a position of high privilege to support someone that largely that policies aren't impacting them. That sort of campaigning for somebody that is trying to uplift the underclass and the lower class that is struggling.

But it seems to be very cool, sort of charitable philanthropic position to take. If somebody that is a means, even if it isn't someone that's starting fighting for you. Well, I'm sure each person has their explanation. And I think they should explain for themselves.

I'm just saying, yeah, no, okay. I don't know if it happens. Right. I mean, you ask me the question, does it happen to connect to the economics?

Does it connect to conditions? Okay. Look around you. Yes, they're connected.

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It's so to do with this sort of push and pull that seems to go in either direction. 30s and particularly in Europe, as I'm saying in the United States, it's a Plato in his book, the Republic, a couple thousand years ago, more than that, wrote about it in democracies, people vote for their interest. And so what happens is the majority of people want to say, give me more, politicians want to give them more, they're willing to get in debt to do these things. Discipline is not the thing, okay, I'm going to be disciplined.

And that's why Plato said in the cycle for democracy or you saw it in the 1930s or you're seeing it now is you want somebody to get control of this thing and make it work well. And then there's two visions as to who that somebody is. And so make the trains run on time was in Italy, which is fascist. And so make the trains run on time, make things work.

And then each has a different vision of what that is. And that's why you have fascism and communism in the 30s. Okay, one is, okay, I need a strong leader to make a command economy to get everybody to have discipline and do it in a sort of pro business, pro capitalist way, or I need to redistribute the opportunities and so I'm going to do it in a communist way. And therefore you have the fights.

It's not surprised like, should know this be obvious. I mean, I'm saying anything, you know, I don't know why you're having me on the interview and why everybody doesn't, you know, am I saying something we can't see? You know what? Why we don't see it?

Because we're only looking at this much. You turn on the news and there's today's news and there's not a scene, the cycle. Okay, it's like the frog in the boiling water idea, you know, you know, take a frog, throw them going, run it, jump, put them into a pot and have it slowly increase in the global today. It's just one increment at a time that is taking place and here we are.

Okay, but draw the lines in that book, the changing world order that I did. I go have 500 years anniversary, you can see the lines, education levels, production, you can, well, these things, you can see them. They're in lines, look at them. Am I saying anything that should be controversial?

It's there. We're not the benefit of perspective. It's difficult to work out what's going on in a broad context. And if you're only ever looking at an hour window, you don't get to detect patterns.

These patterns are by design. They need big windows if you really get through. That's right. That is the main reason.

That what happens is these cycles take about a lifetime. So these things only come across once in a lifetime. So it's like, no, that's the lesson I learned when I was working on the floor that changed that I noted on the same, what was happening. I needed to understand what happened in 1933.

Okay. For those who are interested, the changing world order is explained in my book, principles for dealing with the changing world order. Or you don't even have to buy the book. You can go online for a free video because I'm not trying to sell books.

I'm trying to pass along some knowledge. And you can see that video. In fact, I give a four minute clip from it, or there's about a 30, 35 minute more complete or I'm at it video free. You go on, take a look at it, see what you see.

And then measure what's happening against what that pattern is. Because it's like a disease that goes through stages. And if you want to stay on the stages or you can look at that and say is it tracking that? Do you think we're post democracy yet?

Can anyone really trust the system? Is that breakdowns in belief in politics overall? Is that part of the cycle? I think I should say I believe strongly that we are on the brink of that.

Okay. That it could go either way. But there's more risk. I'll imagine the next economic downturn.

Are we not going to have any more economic downturns? I mean, on average, they've lasted six and a half years. They vary maybe by four years. So I can't tell you about your economic downturn.

When you have a downturn, you're going to have to take more at each other's throats. I mean, I think there will be more conflict. And people are going to get heated up about it. And there's certainly, we're losing a middle.

Okay. We're losing a middle in media. We're losing a middle in every body's on a campaign. And compromise.

How does compromise go? And I've been washington, by the way, my recent book, which explains how the debt cycle works, which I gave you in a nutshell before. But anyway, I've been drawn down to Washington and I meet with top levels of both sides of the parties. And they both agree on both sides on the mechanics.

Okay. So some mechanics as a work is an effect on everybody's reason. I mean, literally almost everybody agrees with that both sides. And I say, well, if I was in your shoes, here's what I would do.

And I could explain what I would do. It doesn't get rid of the debt. But what you have to do is you have to take a little bit from everything. You have to take a little bit from taxes.

You have to take a little bit from spending. And it isn't easy, but you can reduce the budget deficit from 7% of GDP to about 3% of GDP. And if you do that with everybody giving something a little bit, you can achieve that. And if you do that, then the slide-ups apply demand for bonds improves and interest rates come down to that to help.

But if you don't do it now, you're going to have the next big increase in debt. And when you get that debt compounding on itself, you're beyond hope. And that's where we are. And I say, so I call that process the 3% free part solution.

And I would just say take the free part, take that pledge. And it's like being on a boat, hit it to rocks. And the politicians on the boat hit it to rocks know that they're going to go to the rocks. But they're arguing about how to turn.

And I say, I don't care how you turn. Just everybody take it equally from everything. I don't care. But they got to turn.

But they argue it's not going to go left or I'm going to go right. And I answer them. Well, why don't you take them? We agree.

We're going to go ahead to the rocks. And the answer is very interesting. The answer is, well, I can't do that because you have to understand. I have to take one of two pledges if not both politically and for my party.

And that is, I promise you that I will not raise your taxes. And or I promise you that I will not cut your benefits. OK? Because you promise that you're not going to raise your taxes and you promise you're not going to raise your benefit.

Anything on the benefits. OK, that means a debt of seven minus five is two plus the other. But you got to sell it. OK, we know where we're going.

So politics. OK, I have at least a good understanding of how the current economic situation can impact in some politics. We go priority. People feel like they can't give an inch.

That scene is a lack of conviction by their own side. It seems like a field by the other side. They're an unreliable ally. You have this sort of awesome, dense situation that often comes out of capitalism.

Lots of problems. That kind of makes sense. When it comes to the external geopolitical order, I don't even, I do not understand what the fundamentals of how that system works. OK.

That to me is it the same or is it, are they different? And order means what is a system of decision making? So a global geopolitical world order is how do countries deal with each other. And so the way it works is when you have a war, the winners determine how the system is going to work.

So in 1945, we had a war. The US came out of it as a dominant power. I can explain all the reasons why, but it had half of the world's gold. It has half of the world's GDP and have a dominant military power and so on.

And it created the order, the post-world war II order system, in which it replicated to some extent, and attempt to have what the American system is of, let's call it, they have the United Nations, they get a bunch of together, it's like a converse or house. And then they have these multi-national or multilateral organizations like the IMF, like the World Bank, like the World Health Organization, like the World Trade Organization and so on. That was envisioned that those countries would work it out in a way like that. And that doesn't work.

Power matters. So nobody's going to the World Trade Organization and saying these trade deals and now you make a judgment that I'm going to abide by that judgment. Nobody's going to the UN to say that and so on. And now you have shifts in relative power.

It was not many years ago that the United States could say almost, almost any country, I would like you to do this and everybody got the message because they were afraid not to. But then you have China rising as a comparable power. You have other countries in the other countries rising. It happened to my lifetime so I know the difference.

I remember when going to Asia, I mean there was no place, it was backward. I remember when Europe was backward, like in Paris. And I remember when everybody was backward, now you go to places and they're monitoring their shiny and they're productive and they're competitive. And so you see the charts in my book, you see these, you know, what is your backup income?

What is your living standard? What's your educational level? The educational level. The United States in common education measures, peace of sports and such is 34th out of a major developed country.

And it used to be as a share world GDP or whatever. There's not now there's a competition. Okay. Empower matters.

It's not like you go to the judge or the World Court and you solve it in the world court. Okay. So that's how these cycles work and that's where we are in the cycle. And this episode is brought to you by Alan Sona.

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So I'm interested in how China's ascendancy, what we're seeing at the moment, how that relates to sort of the first two orders at the moment. How much that is born out, how much that is influenced by the first two that we've seen because you mentioned earlier on it seems to be the primary geopolitical attention that we have at the moment globally between the US and China. Are there any comparable situations? Yes.

And let me just explain it. Now I have China as a roughly comparable power. And we had a dynamic so I'll connect it to the first, the economic and I'll connect it to the second, which is the political. And we, so connected to the first, China takes off and it becomes very competitive in the world because it was for various reasons, they had communism, Mao dies in 1976 and they changed policies in 1978.

And as a result, they go to policies that made them much more competitive in the world. And so they produce things inexpensively. Americans buy that with borrowed money, the Chinese think, oh, that's great. I'm selling stuff and I'm accumulating my saving in the form of these bonds.

And the Americans think, okay, that's great. I'm buying this good expensive stuff. And I feel that that's good, but I'm also getting deeper in debt and they don't pay too much attention to that. And then also you lose the middle class because we used to be manufacturing.

In other words, the manufacturer people worked on an assembly line. They had a house, two cars in a boat and there was manufacturing in there in a combination of international competitiveness, particularly China, but also technology has wiped that out. We're not manufacturing. So we got deeper into debt and we lose the manufacturing.

We produce our polarity and we're coming closer to a war, a conflict and therefore we cannot have dependencies. Okay, we can't have this dynamic of which we keep buying yourself on borrowed money because the others don't want to lend to us and you can't keep not producing because you're losing the middle class who's angry at you and wants to make changes. And also if you keep needing to buy the stuff from the Chinese or others out there and get into a conflict, you may not get stuff that you need. So all of that has to come to an end, has to at least be significantly reduced.

Okay, and that's where we are. So they're interdependent, right? What about the role of active nature? You know, I can't work out whether given how fine each individual world is active nature matter more or less now because you think that we might be more robust because we go academic buildings and technology to protect us.

But on the flip side, we're finding a single stuck ship in a zoo as canal can cause a global supply chain issue that reverberates for months and months and months and times. So I'm trying to work out, yeah, how much do active nature matter now in the modern world? I don't have to be an expert on that, but I will tell you what I think objective studies are do mean. The estimated costs of either the damage and that the future damage of climate.

And I'm not sure how much this is cyclical and how much of this is man-made. I'm just read the studies, but anyway, you know, people argue about that. But anyway, whatever it is, it is going like this in terms of, let's say, the temperature level and the consequences in terms of damage is estimated cost is about $8 trillion a year, in one of three ways or it's usually a mix of those, either in the cost of trying to prevent climate change. So you have to invest in it and do those things and that's expensive or preventing climate change meaning maybe build the seawalls or you have to adapt.

It's called adaptation. Maybe you have to move because it becomes too tolerable. I don't know. Or the damage itself, Los Angeles earning or whatever, is estimated something like a trillion a year in a world economy that's about a hundred trillion.

So it's one way or another, it appears to be a very expensive thing that's certainly going to require adaptations. But I can't tell you, it's going to get worse. The first four of these are going to get worse, probably. Okay, the death situation, as we get deeper into death and these things happen is probably get worse.

I mean, you're just a projection. The internal order and disorder, particularly if there's more disruption, but anyway, it's not like we're going to probably quickly go back to harmony. I think if there was something we need, we need a strong middle. I can get into that in a minute, but I think you need a strong middle to bring the the soft-ifying between it and to do the difficult things that need to be done in order to deal with our challenges.

But anyway, the political is probably not good. The geopolitical is certainly risky and it is the case that the acts of nature probably get worse and they're related to each other. By the way, because I'm a practical guy, I don't approach it either as an optimist or a pessimist. I have to just be as accurate as I possibly get to that well.

And then there's technology and technology is a two-year-old sword. It'll probably raise productivity a huge amount, but it can be used to wars as well as improvements and it certainly is going to be disruptive to employment. And how are we going to deal with that? In other words, okay, you still have the question of how you divide the pie and it's going to be a lot of fighting over that question.

What's your perspective on the impact that AI is going to have over the next few years? I think there's the creation of AI and it's going to be amazing and it provides enormous, enormous benefits. It's really unique. I think it's the best technology ever, different technologies because it's thinking that applies to everything.

So I'm better thinking of applying to medicine and everything, building buildings, doing anything. It has a broad application and it's going to be a major. Now I don't think the actual applications to create the differences are going to happen as fast as they are as a potential for them to happen is. I think the development is a lot.

But the issue of using it well, incorporating it into our lives, incorporating it into the companies and so on so that it is producing its benefits, I think it's going to be a lot slower than ideally it could be. And as I say, it could be used for wars and also it certainly will create great disruptions. I don't know that we'll be able to handle those disruptions how we do it. And I think it's very difficult to even know the applications, the implications and applications of the new technology.

It's like when the digital age came and we have internet and computerization. Now people will say, you have a higher suicide rate and mental illness for kids who are on phones. Now I would have thought that that would have been a fantastic equalizer of education. All around the world you can be educated on this.

I can't tell you when we're not other than I'm not smart enough to tell the implications of these things. It's a great productivity tool. This is a great productivity tool. What has been its implications?

Okay. It's many ways beneficial. Many ways people would say detrimental. I think the most important thing over time is how people deal with each other.

In other words, can we solve our problems together? It's karma. Or if you don't do it together you're going to be at each other's throats and no one's other problems. Figure, okay, how do we get to the common good of whatever it is?

How do we commonly deal with the debt problem or any of these things? How do we not fight? How do we solve problems well together? I think that's, it's a human nature question.

It's not a technology question. You said you're not sure how well we'll be able to handle the disruption of AI. What does that mean? What is not handling the disruption of AI?

What is doing that badly or not handling it well? What does that mean? It will have implications for employment. It'll radically enable, and just as it's doing now, radically enable and enrich many people.

It will replace many people and it will be used for productivity and discovering of medical treatments and the like, and it will be used for wars. So it's certainly going to be very disruptive in beneficial and detrimental ways. And just like all technologies over period of time, but this one more so, how it's used and how the implications of it are dealt with will be a paramount importance. Before we continue, if you work out to feel flat here, we'll cover you slow or you're just feeling off of your train plan or your dive.

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And it's actually quite an interesting cohort when you look at it, a lot of very working, like lumbering, lumberjacks, logging, boat captains, none of those, they'll lower down on the list. Middle management, sports broadcasters, historians, analysts, middle level, legal, all that sort of stuff, logistics, drivers. So it really doesn't cross the spectrum, it doesn't seem like any particular safe, it doesn't look like any area is going to be protected from this. So you're interested in what you see in terms of this increasing polarity, have not, what that's going to be a combination of psychology and so that's a well-being.

My study history and study human nature, I really do, I'll touch on that in a minute. I think that it's what I've been saying in terms of this conflict and how you work it out and then there's also, I think people have something to be productive and I think the society needs for people to be productive. Maybe it's theoretically possible that you can just receive your check but you still have to have somebody determining, do you get a jacket? What do you do with it?

I know. All I know is that it's going to be very disruptive and the question is how are we going to deal with it? Will we deal with it wisely in a way that most people agree and they'll get angry over it? And so that's kind of all I know.

How wisely do you think we're going to navigate this? Sorry? How wisely do you think we're going to navigate this? I don't think we're going to navigate it wisely.

I think we are human nature problem. That's why I say, I believe, I believe whether we call it karma or spirituality or the nature of can we make the collective good or does the individual fighting for self-interest get such that the collective is bad because everybody's fighting for self-interest and they don't smartly work things out? What goes around comes around. You want the other sense we haven't done it to yourself.

Throughout history, peace, work it out, has ebbed and flowed. Mostly you get peace in that during prosperous times. But when you get a lack of prosperity or whatever, you have the sort of horrendous brutality and wars that we see in varying places now. What's more dangerous?

These cycles are all connected to wars themselves. I'm not sure. I think the cycles are just a description of cause-effect relationships. And the actions in their worst part, which is that part of the cycle where you're getting rid of the debts and you're fighting for who has power and all of that.

And then you get here in 1945, you've got rid of the debts. You now have a new power and then you begin it again. That is the way it works. And then those periods are very dangerous, of course.

Which is worse. One is a description of the process. The other is a description of the bad part of the cycle. And so, did you think that a current stage in cycle explains many most all the conflicts that we're seeing in the moment?

By and large, it is what's going on. Does it explain everything in all ways exactly? No. And I think there's one of the big things.

It's almost people trying to pay a lot of attention to what's happening on the short term and paying too much attention to exactly that they miss the bigger picture. So nothing happens exactly and do pay attention to the bigger cycle. Because the bigger cycle matters and you might overlook the bigger cycle because you're looking at that small thing and you're asking it doesn't happen exactly. What do you think most people miss about the mechanics of how country is full of heart?

Is it slow decay? Does it sudden shock? I think they just are not reading a story. They don't have an experience it.

They don't study it. They don't see the patterns. It's like a person growing from a kid to get older, get married, and they go through their life cycle, get older, and die. And they don't pay any attention to the life cycle.

And they don't pay any attention to the fact that, hey, this is happening over and over and over again. How does that go? Do you know where you are in your life cycle? Do you know what's coming?

Do you know where you are in your life cycle? Are you putting it? Or are you just paying attention? You get to sit your job, your kids, your circumstances and so on.

But you have to step back and say, OK, I'm here in my life cycle. And I'm not a life cycle. So I'm sitting in my life cycle. I'm sitting in my life cycle.

I'm sitting in my life cycle. OK. Do you know? You're almost to the detail.

Your hair isn't great yet. OK. You haven't gotten reading glasses yet. OK.

There are markers. Do you pay attention to that? OK. On your life cycle.

And the next generation and so on. Most people don't pay too much attention. Do you know how the life cycle goes? Do you know what that, you know, it's a fact in terms of life cycle?

Happiness, drops a life cycle. When you're in school, one of my happiest periods is you get out of school, you're immediately out of school. And you have your friends and you have a great time and you have great aspirations. And everything's great.

It's plotted. How many people ask? What is your happiness level? And they find that that's a high point.

The worst part of the life cycle is 45 to 55. OK. Because there's more life balance. You're trying to juggle things.