Ray Dalio

For these reasons, it seems to me that there is only one possible path forward that will require two important things to happen. Since the fighting between those on both sides of the political spectrum and the abandonment of their compromising and rule-following will produce much more harm than good, the United States needs a strong leader of the middle to bring people together and to make necessary, unpopular reforms that make the system work well so there is broad-based productivity and prosperity. That seems like a long shot. Another long-shot possibility is that both a) AI will be so hugely productivity enhancing and will not produce a bubble that will lead to a bust that will economically hurt many people, and b) that there is good enough political leadership and cooperation to distribute the benefits of these AI-based productivity gains to the satisfaction of most people. Hopefully, capable Americans will rise above their individual interests and work together to run things well for most people. Since there has never been more income, wealth, and intelligence in the world, this certainly is a possibility.

In closing, I want to reiterate that I'm not political. I'm just a hyper-realistic guy who has spent most of my life distinguishing what works and what doesn't in order to bet on the winners and avoid the losers and I’m passing along how I see things with the hope that it's of some use.

#RayDalio #USA #finance #trade #trading #news

I am worried for the United States because it is losing sight of the principles that have worked so well for most Americans and that have bound Americans together. I don't believe that it can be taken for granted that the United States won't decline the way many other great countries have declined. I believe that to succeed, Americans need to reflect deeply on what works and look at the KPIs objectively.

While we can objectively measure what each country is doing well and doing poorly, with or without looking at these measures, few people would disagree that the American public education system is broken, the public healthcare system is broken, and the government, which is responsible for managing these things, is broken. At the same time, it is equally obvious that the capitalist private market money/economic system has led to investments and creativity that have created great productivity-improving innovations that have led to big increases in wealth and power, particularly for the top 10 percent of the population who can afford to bypass the troubled public education system, the public healthcare system, and other government administered systems while those in the bottom 60% are by and large falling behind in the quality of their education, their healthcare, and their housing because of relatively low gains in their productivity, their real incomes, and their real wealth, so they are not happy with how things are going for them. Isn't it obvious that, as a result, there are irreconcilable differences between those who are doing well and those who aren't, and their willingness to compromise is falling while their willingness to fight the other side is increasing? So, while the system as a whole is productive and the aggregate numbers look pretty good, the disparities are dangerously large and causing an emerging great conflict.

I don't see solutions being brought forward by the increasingly extreme sides. It’s hard to believe that having the already ineffective government run by idealistic, impractical leftists who haven't built, run, or made anything productive (look at their individual and collective track records) will work well. At the same time, it's also hard to believe in the success of a government run by private market capitalists who have shown little inclination to provide the previously mentioned necessities to the majority so that they can be productive, prosperous members of the system who support it.
If we could agree on these seemingly obvious truths, we could at least agree that it certainly can't be the no track record hard left that is now trying to take over the Democratic Party that will lead the United States to a successful future, just as it is hard to believe that a government led by the self-interested, hard-right capitalists who have no experience, understanding, or track-records of helping those who are failing will lead to success.

It also seems to me obvious that a big fight between these two sides, especially if it leads to the abandonment of or fighting over the rules and governance system (for example, not accepting election results or trying to politically "assassinate the king" by impeaching and charging President Trump with corruption) will increase the conflict. I would assume that most people on both sides can agree that there is an uncomfortably high probability of that happening.

Originally shared on July 4th

I love everything about the 4th of July, and the 250th anniversary is especially great for me because I am joining with family and friends for a reading of the Declaration of Independence, a BBQ, and fireworks.

As I reflect on what has happened over the 250 years that followed July 4th, 1776, it seems like an impossible dream come true. Think about it. Imagine that at the outset on July 4th, 1776, you were asked what odds for success a country would have if it would be mostly made up of poor immigrants coming from all different countries with very different cultures and religions and it would be governed by a political system in which the leaders reported to these people who themselves had to vote, compromise, and submit to life-changing decisions that many disagreed with. Would you bet that it would do exceptionally well and improve for 250 years? I would have thought that virtually impossible, yet America has been exceptional for 250 years.

I also see that it was shockingly terrific and lucky for me to have lived through the best part of those 250 years because I was born four years after the 1945 post-World War II beginning of the new American world order, which gave me the best time in history in the best place in the world.
These reflections give me a deep appreciation for the principles and practices—the secret sauce—that created and sustained this remarkable American story, a fear that we are losing sight of them, and a sense of responsibility to contribute to sustaining them.

Added on July 6th
I wanted to expand on the thinking I expressed on July 4th when I talked about the remarkable secret sauce that produced the exceptional success that the United States has had over the last 250 years. It consisted of bringing together 1) a mixture of relatively poor, hardworking immigrant people with their diverse cultures who one might have thought would have clashed but instead worked well together, 2) an exceptional amount of freedom that one might have thought would have caused disorder and breakup but instead led to a chaotic, rapid evolution, and 3) a democratic federalist government system in which the masses ruled over the leaders that one might have thought would have led to constant fighting and political stalemates but instead led to compromises and rule-following even when many thought the decisions were wrong and against their interests.

Rather than believing that the United States is intrinsically successful, I believe that it, like all successful countries throughout history, has been successful because of the causes (i.e. its secret sauce) that brought about its success and that there is a high risk of losing sight of those causes and the success they brought about. From studying history, I've learned that while there were many secret sauces that have worked, those that worked best for all countries throughout history have three essential ingredients: 1) educating children well so that when they grow into adults they have what it takes to be productive and the civility to be good with each other so that they can be collectively successful and share the rewards of their success, 2) having a good total system for government that consists of an effective political system, an effective legal/governance system, and an effective money/economic system that benefits most of its people who appreciate and support the system, and 3) staying out of wars--both civil and international--that are big enough to ruin the country, or winning them. I have been a great beneficiary of experiencing those things and admire all countries that have them because they are the most fundamental ingredients for most countries’ and most of their peoples’ successes. At the same time, I find that by my objective indicators (see my Country Power Index), the United States is weakening in some key ways.

The Hard-Left: It is hard to believe that having an already ineffective government run by idealistic, impractical leftists—who haven't built, run, or made anything productive (look at their track records)—will work well.
The Hard-Right: It is equally hard to believe in a government run by self-interested, private-market capitalists who have shown little inclination to provide necessities to the majority so they can be prosperous members of the system.
A big fight between these two sides—especially if it leads to the abandonment of the rules (for example, not accepting election results or trying to politically "assassinate the king" by impeaching and charging President Trump with corruption)—will only increase the conflict. There is an uncomfortably high probability of that happening.
Two Paths Forward
There are only two possible, albeit long-shot, paths forward to resolve this:
A Strong Centrist Leader: Because fighting and abandoning compromise will produce much more harm than good, the US needs a strong leader of the middle to bring people together and make the necessary, unpopular reforms that make the system work for everyone.
The AI & Leadership Miracle: A scenario where a) AI becomes hugely productivity-enhancing without producing a economic bubble/bust, and b) there is good enough political leadership to distribute those AI-based gains to the satisfaction of most people.
Hopefully, capable Americans will rise above their individual interests and work together to run things well for most people. Since there has never been more income, wealth, and intelligence in the world, this certainly is a possibility.
In closing, I want to reiterate that I'm not political. I'm just a hyper-realistic guy who has spent most of my life distinguishing what works and what doesn't in order to bet on the winners and avoid the losers, and I’m passing along how I see things with the hope that it's of some use.

The "Secret Sauce" of US Success


I wanted to expand on the thinking I expressed on July 4th when I talked about the remarkable secret sauce that produced the exceptional success that the United States has had over the last 250 years. It consisted of bringing together three unique factors:
A Diverse Cultural Mix: A mixture of relatively poor, hardworking immigrant people with diverse cultures. One might have thought they would clash, but instead, they worked well together.
Exceptional Freedom: A degree of liberty that many thought would cause disorder and breakup. Instead, it led to a chaotic, rapid evolution.
A Democratic Federalist System: A government where the masses rule over the leaders. One might have thought this would lead to constant fighting and political stalemates, but instead, it led to compromises and rule-following—even when many thought the decisions were wrong and against their interests.
Rather than believing that the United States is intrinsically successful, I believe that it, like all successful countries throughout history, has been successful because of these specific causes. Today, there is a high risk of losing sight of those causes and the success they brought about.
The 3 Essential Ingredients for Any Country
From studying history, I've learned that while there were many "secret sauces" that have worked, those that worked best for all countries throughout history have three essential ingredients:
Quality Childhood Education: Educating children well so that when they grow into adults, they have what it takes to be productive. It also builds the civility needed to be good with each other so they can be collectively successful and share the rewards of their success.
An Effective Total System: Having a good overall structure for government that consists of an effective political system, an effective legal/governance system, and an effective money/economic system that benefits most of its people (who in turn appreciate and support the system).
Avoiding (or Winning) Big Wars: Staying out of wars—both civil and international—that are big enough to ruin the country, or winning them if they do happen.
Current Warning Signs & Domestic Disparities
I have been a great beneficiary of experiencing those things and admire all countries that have them. However, by my objective indicators (see my Country Power Index), the United States is weakening in some key ways. I am worried for the United States because it is losing sight of the principles that have bound Americans together. We cannot take it for granted that the United States won't decline the way many other great countries have.
To succeed, Americans need to reflect deeply on what works and look at the KPIs objectively. Today, few people would disagree with these broken realities:
The Public Sector is Broken: The American public education system is broken, the public healthcare system is broken, and the government responsible for managing these things is broken.
The Capitalist System is Disproportionate: The capitalist private market system has created great productivity-improving innovations, wealth, and power—but primarily for the top 10% of the population who can afford to bypass troubled public systems.
The Bottom 60% are Falling Behind: Those in the lower 60% are falling behind in the quality of their education, healthcare, and housing. Due to low gains in productivity, real incomes, and real wealth, they are not happy with how things are going.
The Political Deadlock
As a result, there are irreconcilable differences between those who are doing well and those who aren't. Willingness to compromise is falling, while the willingness to fight the other side is increasing. While the aggregate economic numbers look pretty good, the disparities are dangerously large and causing an emerging great conflict.
I don't see solutions being brought forward by the increasingly extreme sides:

My Reflections on July 4th as America Turns 250

I love everything about the 4th of July, and the 250th anniversary is especially great for me because I am joining with family and friends for a reading of the Declaration of Independence, a BBQ, and fireworks.
As I reflect on what has happened over the 250 years that followed July 4th, 1776, it seems like an impossible dream come true. Think about it. Imagine that at the outset on July 4th, 1776, you were asked what odds for success a country would have if it would be mostly made up of poor immigrants coming from all different countries with very different cultures and religions and it would be governed by a political system in which the leaders reported to these people who themselves had to vote, compromise, and submit to life-changing decisions that many disagreed with. Would you bet that it would do exceptionally well and improve for 250 years? I would have thought that virtually impossible, yet America has been exceptional for 250 years.
I also see that it was shockingly terrific and lucky for me to have lived through the best part of those 250 years because I was born four years after the 1945 post-World War II beginning of the new American world order, which gave me the best time in history in the best place in the world.
These reflections give me a deep appreciation for the principles and practices—the secret sauce—that created and sustained this remarkable American story, a fear that we are losing sight of them, and a sense of responsibility to contribute to sustaining them.

Ray Dalio Warns AI, A Force “Eating Everything”, Could ‘Eat Itself’ if Profits Fail to Match Investment Surge

“The technologies will go on, but the companies won’t necessarily go on,” he said, adding that it is common during periods of innovation for many firms to fail to convert excitement into sustainable earnings.

His remarks arrive at a time when global technology firms are committing record sums to AI infrastructure — from advanced semiconductors to vast data centers — in what many analysts describe as the most capital-intensive phase of the digital era since the buildout of cloud computing.

@RayDalio

#raydalio #finance #trade #trading #news

Sold some of the biggest tech stocks, including Microsoft Corporation (NASDAQ:MSFT), | MSFT Meta Platforms (NASDAQ:META) and Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL).

Let’s now focus on the big event of the last few days: the killing of a second ICE protester in Minneapolis. Two of the classic markers of moving from Stage 5 to Stage 6 that appear to be happening are ““People dying in the fighting is the marker that almost certainly signifies the progression to the next and more violent civil war stage, which will continue until the winners and losers are clearly determined” and “History has shown that during times of great conflict, federalist democracies (like the U.S.) typically have conflicts between the states and the central government over their relative powers.”
The United States is now a tinderbox. Nearly a third of Americans (30%) say people may have to resort to violence in order to get the country back on track, according to the latest PBS News/NPR/Marist poll. Pew Research Center (Sept–Oct 2025) found that 85% of U.S. adults acknowledged that politically motivated violence is increasing in the U.S. A CSIS analysis found that from 2016 to 2024 there were 21 partisan political attacks or plots, compared with only two such incidents in the 25+ years before 2016. That’s roughly a tenfold increase in politically-motivated plots/attacks in a relatively short period. There are more guns in the United States than people, and many people have a violent streak in them. Certainly, the conflict between the central government and Minnesota (and other state governments) is bad and looks likely to get worse. The world saw the killings in Minneapolis of two opponents to Trump’s ICE initiative and is now watching to see which side will back down. Many people are waiting to see whether President Trump will continue to fight, which I believe would risk pushing us over the brink into a more clear civil war, or if he will make an attempt to pull us back from the brink by appealing for peace, promising and showing that the justice system will handle the shootings appropriately, and curtail ICE activities. (In an interview with the WSJ, he said that the administration would review the killing and that ICE would not stay in Minneapolis forever.) While his choice will have huge implications for what comes next, including possibly lighting the tinderbox, in any case, it is important to see everything that is happening in the context of all the forces and events that are driving the Big Cycle. Whatever happens in this Minneapolis case, these are the big forces that are evolving to determine how the Big Cycle will progress.
“Conclusion” (From Principles for Dealing with the Changing World Order. )
“My study of history has taught me that nothing is forever other than evolution, and within evolution there are cycles that are like tides that come in and go out and that are hard to change or fight against. To handle these changes well it is essential to know which stage of the cycle one is in and to know timeless and universal principles for dealing with it. As conditions change the best approaches change—i.e., what is best depends on the circumstances and the circumstances are always changing in the ways we just looked at. For that reason, it is a mistake to rigidly believe that any economic or political system is always best because there will certainly be times when that system is not best for the circumstances at hand, and if a society doesn’t adapt it will die. That is why constantly reforming systems to adapt well is best. The test of any system is simply how well it works in delivering what most of the people want, and this can be objectively measured, which we can do and will continue to do. Having said that, the lesson from history that comes through most loudly and most clearly is that skilled collaborations to produce productive win-win relationships to both grow and divide the pie well, so that most people are happy, are much more rewarding and much less painful than fighting civil wars over wealth and power that lead to one side subjugating the other side.”https://pbs.twimg.com/media/G_mS34wX0AABJtk?format=png&name=900x900

“As previously mentioned, during the civil war/revolution stage of the cycle the governments in power almost always had an acute shortage of money, credit, and buying power. That shortage created the desire to grab money from those who had it, which led those who had wealth to move it into places and assets that were safe, which led the governments to stop these movements by imposing capital controls—i.e., controls on movements to other jurisdictions (e.g., other countries), to other currencies, or to assets that are more difficult to tax and/or are less productive (e.g., gold).”
“To make matters even worse, when there was internal disorder, foreign enemies were more likely to challenge the country. This happens because domestic conflict causes vulnerabilities that make external wars more likely. Internal conflict splits the people within a country, is financially taxing on them, and demands attention that leaves less time for the leaders to tend to other issues—all things that create vulnerabilities for foreign powers to take advantage of. That is the main reason why internal wars and external wars tend to come close together. Other reasons include: emotions and tempers are heightened; strong populist leaders who tend to come to power at such times are fighters by nature; when there are internal conflicts leaders find that a perceived threat from an external enemy can bring the country together in support of the leader so they tend to encourage the conflict; and being deprived leads people/countries to be more willing to fight for what they need, including resources that other countries have.”
“Almost all civil wars have had some foreign powers participating in an attempt to influence the outcome to their benefit.”
“The beginnings of civil wars and revolutions aren’t clear when they are happening, though they are obvious when one is deeply in the middle of them.”
“While historians assign dates to the beginnings and ends of civil wars, they are arbitrary. The truth is that almost no one at the time knows that a civil war has begun or that it has ended, but they know when they are in them. For example, many historians have designated July 14, 1789, as the day the French Revolution began because a mob stormed an armory and prison called the Bastille. But nobody at the time thought it was the beginning of the French Revolution or had any idea how terribly brutal that civil war and revolution would become. While one might not know what’s to come, one can have imprecise markers that help one place where one is, to see the direction that one is moving in, and to know something about what the next stage will be like.”
“Civil wars are incredibly brutal because they are fights to the death. Everyone is an extremist because everyone is forced to pick a side and fight—also moderates lose out in knife fights.”
“As for what types of leaders are best for civil wars and revolutions, they are the “inspirational generals”—people who are strong enough to marshal support and win the various types of battles they have to win. Because the fight is brutal, they have to be brutal enough to do whatever is necessary to win.”
“The time that historians stamp as the civil war period typically lasts a few years and determines the official winners and losers, which is conveyed by who gets to occupy the government buildings in the capital. But like the beginnings, the ends of civil wars/revolutions are not as clearly defined as historians convey. The fighting to consolidate power can go on for a long time after the official civil war has ended.”
“While civil wars and revolutions are typically extremely painful, they often lead to restructurings that, if done well, can establish the foundation for improved future results. What the future after the civil war/revolution looks like depends on how the next steps are handled.”
(End of excerpts).
Where We Now Are

“As previously described, the cycle of building wealth and wealth gaps that leads to a very small percentage of the population controlling an exceptionally large percentage of the wealth eventually results in the poor majority overthrowing the rich minority via civil wars and revolutions. This has happened more times than one can imagine.”
“While most of the archetypical civil wars and revolutions shifted power from the right to the left, many shifted wealth and power to the right and away from those on the left. However, there were fewer of them and they were different. They typically happened when the existing orders slipped into dysfunctional anarchies and a large percentage of the population yearned for strong leadership, discipline, and productivity. Examples of revolutions from the left to the right include Germany, Spain, Japan, and Italy in the 1930s; the fall of the Soviet Union in the 1980s to the early 1990s; the 1976 coup in Argentina replacing Isabel Perón with a military junta; and the coup leading to the Second French Empire in 1851. All those that I examined worked or didn’t work for the same reason. Like those of the left, these new internal orders succeeded when they produced broad-based economic successes and failed when they did not. Because broad economic prosperity is the biggest reason a new regime succeeds or fails, the long-term trends have been to both greater total wealth and broader distribution of the wealth (i.e., better economic and health outcomes for the average person). That big picture can be easily lost when one is in and experiencing one part of the Big Cycle.”
“Typically, the people who led the civil war/revolution were (and still are) well-educated people from middle-class backgrounds. For example, three of the key revolutionary leaders of the French Revolution were Georges-Jacques Danton, a lawyer raised in a bourgeois family; Jean-Paul Marat, a physician, scientist, and journalist raised in a bourgeois family; and Maximilian Robespierre, a lawyer and statesman also from a bourgeois family. This revolution was initially supported by many liberal aristocrats, like the Marquis de Lafayette, who were raised in moderately well-off families. Similarly, the leaders of the Russian Revolution were Vladimir Lenin, who studied law, and Leon Trotsky, who was raised in a bourgeois family of intellectuals. The Chinese Civil War was led by Mao, who was from a moderately well-off family and studied a variety of subjects such as law, economics, and political theory, and Zhou Enlai, who was from a scholarly middle-class family of civil servants. These leaders also typically were (and still are) charismatic and able to lead and work well with others to build big, well-run organizations that have the power to bring about the revolutions. If you want to look for the revolutionaries of the future, you might keep an eye on those who have these qualities. Over time they typically evolve from being idealistic intellectuals wanting to change the system to be fairer to brutal revolutionaries bent on winning at all costs.”
“While having large wealth gaps during economically difficult times was typically the biggest source of conflict, there were always other reasons for conflict that added up to a lot of opposition to the leadership and the system. Typically, in revolutions the revolutionaries with these different grievances joined together to make revolutionary changes; while they looked united during the revolution, after winning the revolution, they typically fought with each other over issues and for power.”

“Another is Japan’s Meiji Restoration, which came about as a result of a three-year revolution (1866–69) that happened because the Japanese were closed off to the outside world and failed to advance. The Americans forced the Japanese to open, which prompted a revolutionary group to fight and defeat the rulers (led by the military shogun) in battle, which led to overturning the internal order then run by the four classes—the military, farmers, artisans, and merchants—that had ruled Japan. This old Japanese order run by traditional people was ultra-conservative (e.g., social mobility was outlawed) and was replaced by revolutionaries who were relatively progressive and changed everything by reinstating the powers of a modernizing emperor. Early in this period there were lots of labor disputes, strikes, and riots that resulted from the classic triggers of wealth gaps and bad economic conditions. In the reform process the leadership provided universal elementary education for both boys and girls, adopted capitalism, and opened the country up to the outside world. They did this with new technologies, which led them to become very competitive and gain wealth.”
“There are many such cases of countries that did the right things to produce revolutionarily beneficial improvements, just as there are many cases of revolutionaries doing the wrong things that inflicted terrible pain on their people for decades. By the way, as a result of its reformations Japan went on to move through the classic stages of the Big Cycle. It became extremely successful and rich. But over time it became decadent, overextended, and fragmented, had an economic depression, and fought expensive wars, all of which led to a classic demise. Its Meiji order and its classic Big Cycle lasted for 76 years from 1869 to 1945.”
“Civil wars and revolutions inevitably take place to radically change the internal order.”
“They include total restructurings of wealth and political power that include complete restructurings of debt and financial ownership and political decision making. These changes are the natural consequence of needing to make big changes that can’t be made within the existing system. Almost all systems encounter them. That is because almost all systems benefit some classes of people at the expense of other classes, which eventually becomes intolerable to the point that there is a fight to determine the path forward. When the gaps in wealth and values become very wide and bad economic conditions ensue so that the system is not working for a large percentage of the people, the people will fight to change the system. Those who are suffering the most economically will fight to get more wealth and power from those who have wealth and power and who benefit from the existing system. Naturally the revolutionaries want to radically change the system, so naturally they are willing to break the laws that those in power demand they adhere to. These revolutionary changes typically happen violently through civil wars, though as previously described, they can come about peacefully without toppling the system.”
“The periods of civil war are typically very brutal. Typically, early on these wars are forceful and orderly struggles for power, and as the fighting and emotions intensify and the sides do anything to win, the levels of brutality accelerate unexpectedly such that the actual levels of brutality that occur in the Stage 6 civil wars and revolutions would have been considered implausible in Stage 5. The elites and moderates generally flee, are imprisoned, or are killed. Reading the stories of civil wars and revolutions, such as the Spanish Civil War, the Chinese Civil War, the Russian Revolution, and the French Revolution, made my hair curl.”
“How do they transpire? Earlier I described the dynamics of Stage 5 that led to crossing the line into Stage 6. During this stage all of those intensify greatly. I will explain.”
“How Civil Wars and Revolutions Transpire”

“Also noteworthy: history has shown that during times of great conflict federalist democracies (like the US) typically have conflicts between the states and the central government over their relative powers. That would be a marker to look out for that hasn’t yet arisen much in the US; it’s happening would signify the continued progression toward Stage Six.” Clearly, in 2026 that is now happening and will likely intensify.
“Stage 5 is a juncture in which one path could lead to civil war/revolution and the other could lead to peaceful and, ideally, prosperous coexistence. Obviously, the peaceful and prosperous path is the ideal path, but it is the much more difficult path to pull off. That path requires a strong leader who has the power to galvanize most people [rather than polarize them] and get them to do the difficult things to rectify the problems to make the country strong again. Those leaders, which are the leaders that Plato called “benevolent despots” bring the opposing sides together to do the difficult things that are necessary to reshaping the order so that it works well in a way that most people agree is fair (i.e., is highly productive in a way that benefits most people). There are few such cases in history. The second type is a “strong fighter” who takes the country through the hell of civil war/revolution.”
“Stage 6: When There Are Civil Wars”
“Civil wars inevitably happen, so rather than assuming “it won’t happen here,” which most people in most countries assume after an extended period of not having them, it is better to be wary of them and look for the markers to indicate how close one is.”
“Though there are innumerable examples that I could have examined to understand how they work, I chose what I believe are the 29 most significant ones, which are shown in the following table. I categorized this group into those that produced big changes to the system/regime and those that did not. For example, the US Civil War was a really bloody civil war that failed to overturn the system/order, so it is in the second group at the bottom of the table, while those that toppled the system/order are at the top. These categories are of course imprecise, but once again we won’t let imprecision stand in the way of seeing what we couldn’t see if we insisted on being precise. Most of these conflicts, though not all of them, transpired in the archetypical way described in this section.
“A classic example of a civil war breaking the system and having to build a new system is the Russian Revolution/Civil War of 1917. This put into place the communist internal order that eventually entered Stage 5 in the late 1980s, which led it to attempt to make revolutionary changes within the system—called perestroika (i.e., restructuring)—which failed and were followed by the collapse of the Soviet Union’s order in 1991. The communist domestic order lasted 74 years (from 1917 until 1991). That order was replaced by the new system/order that is now governing Russia, which, after the collapse of the old order, was built in the classic ways described earlier in this chapter in my explanations of Stages 1 and 2.”

“Late in Stage 5 there are increasing numbers of protests that become increasingly violent. Because there is not always a clear line between a healthy protest and the beginnings of a revolution, leaders in power often struggle over how to allow protests without giving the perceived freedom to revolt against the system. Leaders must manage these situations well. A classic dilemma arises when demonstrations start to cross over into revolution. Both giving the freedom to protest and suppressing protests are risky paths for leaders, as either path could lead the revolution to get strong enough to topple the system. No system allows people to bring down the system—in most, an attempt to do so is treason, typically punishable by death. Nonetheless, it is the job of revolutionaries to bring down systems, so governments and revolutionaries test each other to see what the limits are. When broad-based discontent bubbles up and those in power allow it to grow, it can boil over to the point that when they try to put a lid on it, it explodes. The conflicts in the late part of Stage 5 typically build up to a crescendo that triggers the violent fighting that signifies the transition into what historians stamp as official civil war periods, which I am identifying as Stage 6 in the Big Cycle.”
“People dying in the fighting is the marker that almost certainly signifies the progression to the next and more violent civil war stage, which will continue until the winners and losers are clearly determined.”
“That brings me to my next principle: When in doubt, get out—if you don’t want to be in a civil war or a war, you should get out while the getting is good.” “This is typically late in Stage 5. History has shown that when things get bad, people want to move to where conditions are less bad or good and the doors typically close for people who want to leave. The same is true for investments and money as countries introduce capital controls and other measures during such times.”
“Crossing the line from Stage 5 (when there are very bad financial conditions and intense internal and external conflict exist) to Stage 6 (when there is civil war) occurs when the system for resolving disagreements goes from working to not working. In other words, it happens when the system is broken beyond repair, people are violent with each other, and the leadership has lost control.”
“When one is in Stage 5 (like the US is now), the biggest question is how much the system will bend before it breaks.” “The democratic system, which allows the population to do pretty much whatever it decides to do, produces more bending because the people can make leadership changes and only have themselves to blame. Democracy has also been shown to break down in times of great conflict. Democracy requires consensus decision making and compromise, which requires a lot of people who have opposing views to work well with each other within the system. That ensures that parties that have significant constituencies can be represented, but like all big committees of people who have widely different views (and might even dislike each other), the decision-making system is not efficient.” Over 2000 years ago Plato’s The Republic described very well how democracies break down; it can be used as a commentary for describing what is happening now, so there’s nothing new about it.
“The biggest risk to democracies is that they produce such fragmented and antagonistic decision making that they can be ineffective, which leads to bad results, which leads to revolutions led by populist autocrats who represent large segments of the population who want to have a strong, capable leader get control of the chaos and make the country work well for them.”

“In Stage 5, those who are fighting typically work with those in the media to manipulate people’s emotions to gain support and to destroy the opposition. In other words, media folks of the left join with others of the left and media folks of the right join with others of the right in the dirty fight. The media goes wild like vigilantes: people are commonly attacked and essentially tried and found guilty in the media, and they have their lives ruined without a judge and jury. A common move among 1930s populists of the left (communists) and of the right (fascists) was to take control of the media and establish “ministers of propaganda” to guide them. The media they produced was explicitly aimed at turning the population against the groups that the governments considered “enemies of the state.” The government of the democratically run United Kingdom created a “Ministry of Information” during World War I and World War II to spread government propaganda, and leading newspaper publishers were elevated by the government if they did what the government wanted them to do to win the propaganda war or were vilified and suffered if they didn’t cooperate. Revolutionaries did the same distorting of the truth in all sorts of publications. During the French Revolution, newspapers run by revolutionaries pushed anti-monarchist and anti-religious sentiment, but when those revolutionaries attained power, they shut down dissenting newspapers during the Reign of Terror. During times of great wealth gaps and populist thinking, stories that bring down elites are popular and lucrative, especially those that bring down left-leaning elites in right-leaning media outlets and those that bring downright-leaning elites in left-leaning media outlets. History shows that significant increases in these activities are a problem that is typical of Stage 5, and that when combined with the ability to inflict other punishments, the media becomes a powerful weapon.”
“Rule-Following Fades and Raw Fighting Begins”
When the causes that people are passionately behind are more important to them than the system for making decisions, the system is in jeopardy. Rules and laws work only when they are crystal clear and most people value working within them enough that they are willing to compromise in order to make them work well.”
If both of these are less than excellent, the legal system is in jeopardy. If the competing parties are unwilling to try to be reasonable with each other and to make decisions civilly in pursuit of the well-being of the whole, which will require them to give up things that they want and might win in a fight, there will be a sort of civil war that will test the relative powers of the relevant parties. In this stage, winning at all costs is the game and playing dirty is the norm. Late in Stage 5 is when reason is abandoned in favor of passion.”
“When winning becomes the only thing that matters, unethical fighting becomes progressively more forceful in self-reinforcing ways. When everyone has causes that they are fighting for and no one can agree on anything, the system is on the brink of civil war/revolution.”.
“This typically happens in a couple of ways: Late in Stage 5 it is common for the legal and police systems to be used as political weapons by those who can control them. Also, private police systems form—e.g., thugs who beat people up and take their assets, and bodyguards to protect people from these things happening to them. For instance, the Nazi party formed a paramilitary wing before it came to power that then became an official force when the Nazis were in power. The short-lived British Union of Fascists in the 1930s and the Ku Klux Klan in the US were effectively paramilitary groups as well. Such cases are quite normal, so view their development as a marker of moving to the next stage.”

“Out of disorder and discontent come leaders who have strong personalities, are anti-elitist, and claim to fight for the common man. They are called populists. Populism is a political and social phenomenon that appeals to ordinary people who feel that their concerns are not being addressed by the elites. It typically develops when there are wealth and opportunity gaps, perceived cultural threats from those with different values both inside and outside the country, and “establishment elites” in positions of power who are not working effectively for most people. Populists come into power when these conditions create anger among ordinary people who want those with political power to be fighters for them. Populists can be of the right or of the left, are much more extreme than moderates, and tend to appeal to the emotions of ordinary people. They are typically confrontational rather than collaborative and exclusive rather than inclusive. This leads to a lot of fighting between populists of the left and populists of the right over irreconcilable differences. The extremity of the revolution that occurs under them varies. For example, in the 1930s, populism of the left took the form of communism and that of the right took the form of fascism while nonviolent revolutionary changes took place in the US and the UK. And four democracies turned into autocracies. More recently, in the United States, the election of Donald Trump in 2016 was a move to populism of the right while the popularity of Bernie Sanders, Elizabeth Warren, and Alexandria Ocasio-Cortez reflects the popularity of populism of the left. There are increased political movements toward populism in a number of countries. “
“Watch populism and polarization as markers. The more that populism and polarization exist, the further along a nation is in Stage 5, and the closer it is to civil war and revolution. In Stage 5, moderates become the minority. In Stage 6, they cease to exist.”
“Class Warfare”
“In Stage 5, class warfare intensifies. That is because, as a rule, during times of increased hardship and conflict there is an increased inclination to look at people in stereotypical ways as members of one or more classes and to look at these classes as either being enemies or allies. In Stage 5, this begins to become much more apparent. In Stage 6, it becomes dangerous.”
“A classic marker in Stage 5 that increases in Stage 6 is the demonization of those in other classes, which typically produces one or more scapegoat classes who are commonly believed to be the source of the problems. This leads to a drive to exclude, imprison, or destroy them, which happens in Stage 6. Ethnic, racial, and socioeconomic groups are often demonized. The most classic, horrific example of this comes from the Nazi’s treatment of Jews, who were blamed and persecuted for virtually all of Germany’s problems. Chinese minorities living in non-Chinese countries have been demonized and scapegoated during periods of economic and social stress. In the UK, Catholics were demonized and scapegoated in numerous stressful periods, such as the Glorious Revolution and the English Civil War. Rich capitalists are commonly demonized, especially those who are viewed to be making their money at the expense of the poor. Demonizing and scapegoating are a classic symptom and problem that we must keep an eye on.”
“The Loss of Truth in the Public Domain”
“Not knowing what is true because of distortions in the media and propaganda increases as people become more polarized, emotional, and politically motivated.”

When the financial problems occur, they typically first hit the private sector and then the public sector. Because governments will never let the private sector’s financial problems sink the entire system, it is the government’s financial condition that matters most. When the government runs out of buying power, there is a collapse. But on the way to a collapse there is a lot of fighting for money and political power.”
“From studying 50-plus civil wars and revolutions, it became clear that the single most reliable leading indicator of civil war or revolution is bankrupt government finances combined with big wealth gaps. That is because when the government lacks financial power, it can’t financially save those entities in the private sector that the government needs to save to keep the system running (as most governments, led by the United States, did at the end of 2008), it can’t buy what it needs, and it can’t pay people to do what it needs them to do. It is out of power.”
“A classic marker of being in Stage 5 and a leading indicator of the loss of borrowing and spending power, which is one of the triggers for going into Stage 6, is that the government has large deficits that are creating more debt to be sold than buyers other than the government’s own central bank are willing to buy. That leading indicator is turned on when governments that can’t print money have to raise taxes and cut spending, or when those that can print money print a lot of it and buy a lot of government debt. To be more specific, when the government runs out of money (by running a big deficit, having large debts, and not having access to adequate credit), it has limited options. It can either raise taxes and cut spending lot or print a lot of money, which depreciates its value. Those governments that have the option to print money always do so because that is the much less painful path, but it leads investors to run out of the money and debt that is being printed. Those governments that can’t print money have to raise taxes and cut spending, which drives those with money to run out of the country (or state or city) because paying more taxes and losing services is intolerable. If these entities that can’t print money have large wealth gaps among their constituents, these moves typically lead to some form of civil war/revolution.”
“Those places (cities, states, and countries) that have the largest wealth gaps, the largest debts, and the worst declines in incomes are most likely to have the greatest conflicts. Interestingly, those states and cities in the US that have the highest per capita income and wealth levels tend to be the states and cities that are the most indebted and have the largest wealth gaps—e.g., cities like San Francisco, Chicago, and New York City and states like Connecticut, Illinois, Massachusetts, New York, and New Jersey.”
“Facing these conditions, expenditures have to be cut or more money has to be raised in some way. The next question becomes who will pay to fix them, the “haves” or the “have-nots”? Obviously, it can’t be the have-nots. Expenditure cuts are most intolerable for those who are poorest, so there needs to be more taxation of people who can afford to pay more and there is a heightened risk of some form of civil war or revolution. But when the haves realize that they will be taxed to pay for debt service and to reduce the deficits, they typically leave, causing the hollowing-out process. This is currently motivating movements from some states to others in the US. If bad economic conditions occur, that hastens the process. These circumstances largely drive the tax cycle.”
“History shows that raising taxes and cutting spending when there are large wealth gaps and bad economic conditions, more than anything else, has been a leading indicator of civil wars or revolutions of some type.”
“Populism and Extremism”

“Because I covered that cycle comprehensively in Chapters 3 and 4, I won’t explain it here in detail. But to understand Stage 5, you need to know that it follows Stage 3, in which there is peace and prosperity and favorable debt and credit conditions, and Stage 4, in which excess and decadence begin to bring about worse conditions. This process culminates in the most difficult and painful stage—Stage 6—when the country runs out of money and there is typically terrible conflict in the form of revolution or civil war. Stage 5 is the period during which the interclass tensions that go along with worsening financial conditions come to a head. How different leaders, policy makers, and groups of people deal with conflict has a major impact on whether the country will undergo the needed changes peacefully or violently.”
“The Classic Toxic Mix”
“The classic toxic mix of forces that brings about big internal conflicts consists of 1) the country and the people in the country (or state or city) being in bad financial shape (e.g., having big debt and non-debt obligations), 2) large income, wealth, and values gaps within that entity, and 3) a severe negative economic shock.” “That confluence typically brings about disorder, conflict, and sometimes civil wars.”
“To have peace and prosperity, a society must have productivity that benefits most people.
Averages don’t matter as much as the percentage of people who are suffering and their power.” In other words, when there is not broad based productivity and prosperity, risks rise.
An essential ingredient for success is that the debt and money that are created are used to produce productivity gains and favorable returns on investment, rather than just being given away without yielding productivity and income gains. If it is given away without yielding these gains, the money will be devalued to the point that it won’t leave the government or anyone else with much buying power.
History shows that lending and spending on items that produce broad-based productivity gains and returns on investment that exceed the borrowing costs result in living standards rising with debts being paid off, so these are good policies.”
“History shows and logic dictates that investing well in education at all levels (including job training), infrastructure, and research that yields productive discoveries works very well. For example, big education and infrastructure programs have paid off nearly all the time (e.g., in the Tang Dynasty and many other Chinese dynasties, in the Roman Empire, in the Umayyad Caliphate, in the Mughal Empire in India, in Japan’s Meiji Restoration, and in China’s educational development programs over the last couple of decades), though they have long lead times. In fact, improvements in education and infrastructure, even those financed by debt, were essential ingredients behind the rises of virtually all empires, and declines in the quality of these investments were almost always ingredients behind empires’ declines. If done well, these interventions can more than counterbalance the classic toxic mix.” In Stage 5 this doesn't happen.
All of this makes the economy more vulnerable to an economic shock. “The economic shock can come about for many reasons, including financial bubbles that burst, acts of nature (such as pandemics, droughts, and floods), and wars. It creates a financial stress test. The financial conditions (as measured by incomes relative to expenses and assets relative to liabilities) that exist at the time of the stress test are the shock absorbers. The sizes of the gaps in incomes, wealth, and values are the best indicators of degrees of fragility of the system.”

For me, watching what is now happening is like watching a movie that I have seen many times in history. I am a global macro investor whose approach to betting on what is going to happen is to understand the mechanics of how things work by learning the lessons of history. I find that what is now happening has happened repeatedly for the same reasons and that understanding the cause/effect relationships has helped me immensely. I am now in a stage of my life where I want to pass along what has helped me rather than keep it to myself to benefit myself. For that reason, I described the typical sequence of events that leads to the rises and declines of monetary orders, domestic political orders, and international geopolitical orders in my book, Principles for Dealing with the Changing World Order. I call this sequence of events the “Big Cycle” because it is big and long-lasting, typically lasting about 80 years (i.e., about one lifetime.)
The last time these orders broke down was in the 1930 - 1945 period, which led to the 1945 beginning of the post-war monetary, domestic political, and international geopolitical orders that we are now seeing break down. The symptoms that can be used to identify what stage of the Big Cycle we are in and the forces that drive the Big Cycle were comprehensively described in my book. Most importantly, I laid out, in detail, the processes and sequences of events that typically lead to the break down of the monetary order, the domestic political order, and the international geopolitical order so that one can compare the actual sequence of events with that which was laid out in that template.
For readers of the book, it should now be clear that we are on the brink of going from Stage 5 (pre-breakdown of the existing orders) to Stage 6 (breakdowns of the existing orders) of the Big Cycle.
I wrote that book with the intentions of 1) helping policy makers understand the process that leads to breakdowns and prevent them and 2) helping people protect themselves against being hurt by these breakdowns. I did that with the realization that my explanations probably wouldn't have a material effect on the trajectory. They haven’t. Still, as we are now clearly on the brink of crossing from Stage 5 (pre-breakdown) to Stage 6 (breakdown) and choices can be made that can have huge effects on outcomes, I feel compelled to reiterate the highlights of the dynamic that I believe is behind what is now happening and to make clear the choices that can make better or worse outcomes. To do that here, I am now going to briefly share the most relevant parts of what I wrote in Principles for Dealing with the Changing World Order for what’s happening now, specifically the highlights about how Stage 5 (the pre-breakdown of orders period) leads to Stage 6 (the breakdown of orders period). This will allow you to compare what is now happening with my Big Cycle template. To be clear, even though it is unlikely that the monetary order will be fixed via the financial discipline that is required to bring about financial health, and it is doubtful that there will be returns to rules-based domestic political and international geopolitical orders that are essential for peaceful resolutions of disagreements and democracy to work, these improvements are still possible as we haven’t yet gone over the brink from Stage 5 to Stage 6.
What follows are excerpts from the book that paint the picture. After sharing them, I will explain how what I wrote five years ago applies to the current situation (see “Where We Are Now” below).
“Stage 5: When There Are Bad Financial Conditions and Intense Conflict”

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