A chat with Ray Dalio

We talked to one of the most successful investors in

the world about in6ation, the debt crisis, and the
decline of the American empire.

Zachary Crockett June 10, 2022

NOTE: This is an edited transcript of our full podcast

interview with Ray Dalio. If you prefer audio, you can listen
to it in full here.

Ray Dalio is the founder and co-chief investment o2cer of

Bridgewater, the largest hedge fund in the world. He’s one of
the 100 richest people on Earth. He’s also a bestselling
author.

I recently sat down with Dalio to talk about his latest book,
The Changing World Order, which uses a historical lens to
examine why empires rise and fall — and why the US may be
showing some signs of decline.

We covered a range of topics about the economy and Dalio’s

life, including:

1. The 3 biggest issues America is facing right now

2. What’s driving the debt crisis
3. The growing wealth gap (and what we should do
about it)
4. Thoughts on inSation and an impending recession
5. Investing during times of volatility
U. Whether or not crypto can become a reserve
currency
7. Dalio’s worst (and best) failure as an investor
W. Billionaire personality tests
9. How Dalio helped McDonald’s launch chicken
nuggets

The conversation below has been edited for clarity, and

annotated with additional context where necessary.

***

ZACHARY CROCKETT: We are in a moment where a lot of

people, particularly young folks, feel disenchanted with the
American dream. You’ve spent a lot of time studying the
markets from a historical perspective. What would you say
to those of us who haven’t lived through a time quite like this
before? 

RAY DALIO: There are three [things] that are happening in the
US right now:

1. First, the creation of enormous amounts of debt

and the printing of a lot of money. This results in
inSation, which takes buying power away from
people.
2. Second, internal con6icts. Political conSict
between the left and the right, the haves and the
have-nots, and people with different values.
3. And third, a great power con6ict on a global stage.
In 1945, the US had 80% of the world’s gold, and we
[accounted for] 50% of the world’s economy. And
we had a monopoly on military power. And now
that gap has narrowed.

TheUSdebtcrisis
Totalnationaldebt,1993-2022

Surpassed$30Tin2022
S30T

$25T

S20T

S15T

$10T

S5T

1993 2022

DATA:USTreasuryDept >meHUSTLE

The Hustle

Let’s walk through each of those a little bit more, starting

with debt creation. The national debt is now at $30T. It’s up
$7T since 2019 alone. How did we get here? 

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Creating credit stimulates. Whenever you get a bad situation,

you get this very heavy dose of credit. But credit produces
debt that builds up over a long period of time.

In recent times — crst the 2008 recession and now covid —

there was a desire to give people a lot of money. So they
created a lot of debt as a big stimulation and printed a lot of
money to make it easier to pay that debt.

Moving to internal crises, you spend a lot of time discussing

class divisiveness in The Changing World Order.

During the pandemic, billionaires saw their wealth surge by

70%, to $2.1T. I think we can probably both agree that
capitalism run amok is not good. In your opinion, where does
the current version of capitalism fall short?

It falls short in delivering the basic results.

I’m a capitalist. I believe in capitalism. But I think everything’s

got to be reformed. The bottom 60% of the population has
not had a rise in per-capita income since 1980. There are big
opportunity gaps in areas like education.

We’re going to need radical reforms in order to rectify that.

Well, the left wants redistribution. The right wants trickle-

down policies. In your opinion, how do we Yx these
inequities?

I almost don’t care what’s done as long as it’s bipartisan.

The most important thing is that we have to develop a solid

middle — a bipartisanship of smart people who can work
together across party lines to make the reforms. We can get
into a type of civil war if the two extremes are cghting. This
has happened repeatedly in history.

A fairer society minimizes these conSicts.

There are smart investments that can be made. Investments

in education, for example, and ensuring that no school district
falls below a certain level. If you want to look at what
countries did well historically, they invested in infrastructure.
It’s a good investment.

America'sgrowingwealthgap
ChangeintotalnetworthsincetheendoftheGreatRecession

S30T
top1%
S25T
90-99%

S20T
50-90%

S15T

S10T

$5T
bottom50%

2009 2022

DATA:BoardofGovernorsoftheU.S.FederalReserveSystem >meHUSTLE

The Hustle

How about a billionaire tax? 

Well, I think that there needs to be a transfer of wealth. Not

just a transfer of wealth, but a transfer of education and
opportunities.

That’s going to have to come signiccantly from taxes, and the

wealthy can pay for it better. So, I think that’s inevitable that
that would and should come.

Now the form of the tax is a different question. How does it

work? When you have a wealth tax, that requires you to be
able to value all those assets. Some of those assets are not
easy to value. They’re illiquid. 

Inheritance taxes might be a more effective solution.

In any case, my generation has left the next generation —

your generation — with a broken-down infrastructure and a lot
of borrowed money. That’s a problem.

You don’t often hear that admitted aloud.

Well, it’s just a fact.

Let’s discuss your third point, which is a shift in the “world

order.” You think that China may eventually usurp America as
the world’s leading superpower. What indicators is this
based on?

It is inevitable that China will be a comparable power. It is

likely that it will pass the US, but not certain. It’ll all depend on
how much the United States takes care of itself.

China has a population four times that of the US. If its per-
capita income was even half that of the US, it would be twice
as large economically. I crst started going to China in 1984.
Since then, its per-capita income has increased by 26 times. 

We can’t discount China, and we know that we’re in a different

world than in the early years of me growing up when the
United States was the dominant power.

We’re going to have a great power conSict. And there are no

courts that you go to when you have disagreements; it’s a
power conSict. What matters most is power. And so we
better get stronger, or expect that we have to deal with that
power conSict. Ideally in a way that does not produce a
military war.

China has many problems of its own: a population is aging,

opaque Ynancial markets, severe internal social and cultural
injustices. Do you see these as potential threats to its rise? 

China has a number of challenges.

Despite those challenges, it’s likely that they will grow at a

faster pace than we will grow at because they are being very
productive.

Would it really be that bad to be, say, the third or the Yfth
most powerful country in the world? What do you lose when
you lose that top spot on the throne?

I think that top spot is way exaggerated.

To some extent, you can control things more when you’re in

the top spot. But going to war and leading those wars is
terribly dangerous. And maintaining that top spot is very
costly. The US has bases in 70+ countries.

So yeah, being number one has its own problems.

The'bigcycle'
Typicalstagesintheriseandfallofanempire

9 -10-~11.
2
a THETOP
0
ro O
p
THERISE THEDECLINE 15,
p
a
NewOrder
R
1Strongleadership 9Lessproductive 13Largedebts
2)Inventiveness 10Overextended 14Printingmoney
3Education 11Losingcompetitiveness 15Internalconflict
4Strongculture 12Wealthgaps 16Lossofreserve
5Goodresourceallocation Currency

6Goodcompetitiveness )Weakleadership
7Strongincomegrowth 18Civilwar/revolution

8Strongmarketsand
financialcenters

DATA:TheChangingWorldOrder(RayDalio) )heHUSTLE

The Hustle

You have this interesting chart in the book that maps out the
major characteristics in the rise and fall of an empire, based
on 500 years of historical data. Where do you see the US
right now in this cycle?

The Changing World Order (Ray Dalio)

Well, I think we’re relatively late in the cycle.

We’re in the riskier part of the cycle, which is the cycle right
before wars. But that doesn’t mean a war is inevitable.

Really, it all comes down to how we are with each other. The
world has more resources, more wealth, than it ever had. If
we work together to share of the wealth and the
opportunities, you can avoid wars.

We’ve heard a lot of prominent voices weigh in on a possible

impending recession. Jamie Dimon, the CEO of JPMorgan
Chase, recently said a “hurricane” is coming. What are your
thoughts on that?

I believe that we will be in a relatively extended period of

stagSation.*

We have inSation, which takes buying power away. And the

central bank is going to cght it by making credit less available
and raising interest rates, which takes even more buying
power away.

[*Stag6ation: A period in which the inSation rate is high and

the economic growth rate slows.]

How do you generally think about moments of volatility, like

the one we’re in now, from an investing vantage point?

I would worry about holding assets that are prone to deSate.

When you hold a bond or a money market fund, you’re going

to get an interest rate [that] is substantially below the inSation
rate, so you’ll lose buying power. Diversify well.

[If I were] to pick countries [for foreign investments], there are

three questions I’d ask:

1. Is the country earning more than it’s spending?

2. Does it have internal order where people are
working well with each other to be productive?
3. Is it at risk of being drawn into an international war?

There’s a growing movement to make bitcoin a reserve

currency.* Do you see a future there?

I think bitcoin has been a tremendous accomplishment. But I

don’t think central banks are going to hold it as a source of
reserves.

It’s decentralized, but at the end of the day, governments can

still monitor and control it. And the biggest problem with
governments is that right now they have their own money
problem and you can’t trust them. If bitcoin became too much
of a good alternative, they’d get rid of it.

We talk a lot about bitcoin as an alternative, but its total value

is relatively small [~$556B, as of publication]. I think too
much is being made of it.

[*Reserve currency: A foreign currency that is held in large

quantities by central banks for international transactions and
investments.]

The Hustle

All right, let’s shift to you now. There were two Ynancial bets
that you made that had a huge impact on your career. One
was really bad and the other was really good.

The bad: You started Bridgewater in 1975. In 1982, you

incorrectly predicted the coming of an economic crisis and
you pretty much lost everything. You had to borrow $4k from
your dad to pay the bills. What did you take away from that
experience? 

Oh, it was one of the most painful experiences that happened

to me. But also one of the best.

What I took away was a different way of thinking. It gave me

a humility that balanced my audacity. It made me ask myself,
“How do you know you’re right?” And I developed a principle:
Pain + ReSection =  Progress.

I learned how to diversify better. I learned how to be more

open-minded and [try] to have my ideas stress-tested by other
people who disagree with me.

The good: you anticipated the 2008 recession and made

your investors a sizable return when almost everyone else
was hemorrhaging money. What did you see there that
others missed?

I went back and studied history.

I studied the 1929-33 debt bubble and burst,* and I

understood it mechanically. What I was seeing in 2007-08
was identical.

It’s a good example of how people can miss out on

something because it never happened before in their lifetime.
But by studying the past, I was able to anticipate it.
Bridgewater made a lot of money when others lost a lot of
money because we understood the nature of dynamics. 

[*1929-33 bubble and burst: Between 1929 and 1933 (the

worst years of the Great Depression), industrial production
fell by 47%, GDP dropped by 30%, and unemployment soared
to 20%.]

There’s a story about how you helped McDonald’s launch

chicken nuggets. You were a commodities trader and an
adviser early in your career. In the early ’80s, McDonald’s
had this new idea for a product, but there was a problem.
And they came to you for help…

I had a large chicken producer as a client, and I had

McDonald’s as a client. McDonald’s wanted to come out with
the McNugget.

But the problem with the McNugget was if the cost of buying
chicken varied a lot, they couldn’t put it on the menu. The
price could go up. And they’d have big losses and then they’d
either have to change the menu price, which would be a
mess, or they would have to take these losses.

I knew the chicken producer. And I knew that the cost of

producing a chicken is very small — it’s mostly the corn and
soymeal that you feed the chick.

I knew that I could hedge that by being able to buy corn and
soymeal futures so that they would lock in a chicken price. So
I showed the chicken producer how he could do that and then
gave a cxed price to McDonald’s.

Dalio helped McDonald’s launch their popular McNuggets

(Photo by Chris Hondros/Getty Images)

You live by kind of a hyperrealist philosophy, in that most

things in life are machine-like and conform to some
overarching sense of order. What I Ynd interesting about that
is that your father was a jazz musician and jazz is all about
breaking free from structures.

What role has improvisation played in your life? 

Improvisation is an expression of creativity that comes from

the subconscious.

I practice transcendental meditation, which brings me into my

subconscious. When I align those subconscious thoughts
with what is happening in my conscious mind, it helps me
make better decisions. 

I carry the effects of transcendental meditation through the

day. And it gives me that equanimity, that calmness, to be
able to approach things in a good way so I don’t get
emotionally hijacked.

You’ve met a lot of successful people in your life — heads of

state, dignitaries, some of the wealthiest people on earth.
Would you say there are any common traits among highly
accomplished individuals that you’ve met?

Yes.

I’ve actually done personality testing* on acquaintances and

friends, including Elon Musk, Bill Gates, and Reed Hastings.

A few things they have in common:

They’re very, very, very curious, and independent

thinkers.
They’re “full range” — they’re able to go from the
full range of the big picture down to the smallest
detail.
They’re both systematic and creative. Most
people who are creative may not be so
systematic, and most people are systematic may
not be creative. They tend to be both.
They tend to hold people accountable. They have
high standards for other people. Some people
would say they’re rude or abrupt.

Most people at the top of their profession made it there

because they must be very smart and very capable. Of
course, that enters into it. But it’s really how they deal with
what they don’t know.

[*You can learn more about Dalio’s personality tests here.]

Are there any life principles that you’ve rethought lately, or

that have shifted over time? 

The one that comes to mind, again, is Pain + ReSection =

Progress.

I lost a son. That was the most painful experience of my life.

At 42, he died in an automobile accident. It was the worst
thing that ever happened to me.

I reSected quite a bit on death and life, and my relationship

with him.

And related to that is the serenity prayer: “Give me the

serenity to accept that which I can’t control, give me the
power to control that which I can, and give me the wisdom to
tell the difference.”

It seems like you’ve spent a large portion of your life trying

to wrangle things in and make sense of things that are
uncontrollable — markets, relationships, people.

That’s right. And one of the things I’ve learned is that

whatever success I’ve had in life has been more due to my
knowing how to deal with what I don’t know.

I have a principle: “If you worry, you don’t have to worry. And if
you don’t worry, you need to.”

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