The YouTube domain is not approved for posting a direct link so instead of quitting, I decided to make a short summary of Ray Dalio’s video. Source at the end.
There is a cycle though which every dominant power goes through.
After a major conflict (usually a war), your country is now on top of the new world order. No one wants to challenge you right now so a period of peace and prosperity follows. As people get used to peace on prosperity they bet on that period continuing. They borrow money because they are optimistic which eventually leads to a financial bubble. Your country’s share of global trade grows.
This leads to your currency becoming the world’s reserve currency. This gives you the power to get loans from the countries which use your currency as their reserve currency and when it gets difficult to repay those loans you print more money. Using all that you boost education, infrastructure, financial markets and the military to get into an even more favourable position.
Sensing that you are at the top, you start borrowing more and print more money which causes a devaluation of your currency. Inevitably, this leads to massive buying of stocks and commodities and even more lending that is used to buy them.
This causes the wealth gap to increase. Massive wealth gap breeds internal conflicts which call for redistribution of wealth which makes that wealth search for safe havens.
All that asset inflation eventually stops as the bubble cannot be pumped forever. It bursts and it is swiftly followed with the printing of money.
This combined with the internal conflicts mainly about wealth redistribution weakens your country from the inside. An external power can sense your weakness and force you in external conflicts which are super expensive and thus make things worse. Eventually, after a military defeat (because no leading power declines without a fight) comes a 10-20 year period of transition and a new power goes on top.
Examples are given using the Dutch, British and US dominance through the years, hinting to a challange from China.
Ray Dalio argues that the current age of a person is a good predictor on how much longer that person is going to live and at what stage the person is within his life but an even better indicator are the set of vital signs measurements one could look at in order to see a more complete picture of the situation. Same goes for countries.
The 8 metrics that Ray Dalio considers are:
- Inventivenes and technology development
- Competitiveness in global markets
- Economic output
- Share of world trade
- Military strength
- The power of the financial center for capital markets
- The strength of their currency as a reserve currency
Dalio argues that good leads monitor the state of their country and try to fix things if they sense the problems on time. However, if things are allowed to progress too far it is very difficult to reverse course.
This is in no way a financial advice and don’t blindly decide to do something because you just read something on the internet. Do your own research!