Source: Fortune
Summary
Ray Dalio, founder of Bridgewater Associates, is warning that the US is entering a period of “great turbulence” that will make the country “almost unrecognizable” in five years. He argues that the national debt, currently at $38 trillion, is just one of five forces converging to create this turbulent period. The other four forces include domestic political conflict, international rivalry, acts of nature, and artificial intelligence. Dalio believes that the US is living through a “big cycle” of empire rise and fall, and that the country’s ability to respond to these challenges is hindered by the incentive structure of democratic politics.
Our Reading
The numbers tell one story. Dalio’s warning about the national debt is not new, but the framework surrounding it is. He argues that the debt crisis is converging with four other forces to create a period of great turbulence. The US is spending $7 trillion annually while collecting only $5 trillion in revenue, and the federal government is paying billions every week in debt service. Dalio likens the situation to “plaque building up” in an artery, and warns that a stagflationary spiral is likely. The most striking aspect of Dalio’s warning is his comparison of the US’s situation to the 1956 Suez Crisis, which marked the beginning of the end of the British Empire. He argues that the US is facing a similar “Suez moment” in the Strait of Hormuz, which could determine whether the American-led global order survives.
The strategy enters a familiar phase. Dalio’s advice to investors is to diversify and hedge against dollar devaluation. He recommends allocating up to 15% of their portfolio to gold and crypto as a hedge against fiat currency devaluation. This is a defensive strategy, and it reflects Dalio’s pessimism about the US’s ability to respond to the challenges it faces.
The announcement sounds familiar. Dalio’s warning about the national debt is not new, but the framework surrounding it is. He argues that the debt crisis is converging with four other forces to create a period of great turbulence. This is a familiar pattern, and it reflects the cyclical nature of empires.
The numbers tell one story, but the politics tell another. Dalio believes that the incentive structure of democratic politics is a major obstacle to addressing the national debt. Elected officials who make hard choices don’t get re-elected, so they don’t make them. This is a familiar problem, and it reflects the challenges of addressing long-term problems in a democratic system.
The outcome is far from certain. Dalio’s warning is stark, but it is not a prediction. The US has faced many challenges in the past, and it has always found a way to adapt and survive. However, the current situation is unique, and the outcome is far from certain.
Original observation: The US is facing a “big cycle” of empire rise and fall, and the current period of turbulence is just one phase of this cycle.
Author: Evan Null
