Transcript: Ray Dalio



The transcript from this week’s, MiB: Ray Dalio, is below.

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ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

RITHOLTZ: I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

My extra special guest this week is Ray Dalio. He is the founder of Bridgewater, one of the world’s largest hedge funds. He is the author of numerous bestselling books, including “Principles: Life and Work” and “Big Debt Crises.” His latest is called “The Changing World Order: Why Nations Succeed and Fail.”

Ray Dalio, our returning champion, welcome back to Bloomberg.

DALIO: Thank you, Barry. It’s always a pleasure to be with you.

RITHOLTZ: So, before we get into the book, I want to give listeners who may not be familiar with some of your work a little background. And you first came to my attention for the work you do on mistakes as, quote, “opportunities to learn and improve, the key to success in life is learning how to fail well.” Tell us a little bit about that. What — what led you to that understanding?

DALIO: The markets. You know, but I mean, it’s true like pain is a great teacher, you know, so I learned pain plus reflection equals progress, and so the markets. You know, markets teach you humility. You got to be aggressive and you got to be defensive at the same time. So, what I learned is whatever successes I had in life had to do more with how I dealt with what I didn’t know than what I know. And so, that means taking it in. But making mistakes and reflecting on them, hey, that’s a great way to learn, right?

RITHOLTZ: It certainly is. And there’s another issue that you bring up related to that, which is hyperrealism. You have to understand how reality works then learn how to deal with it, which kind of raises an issue. Isn’t that obvious? Who gets that wrong? Who doesn’t deal with reality?

DALIO: Well, I — I think the most people have a wish of what reality is, and they get upset that their reality is not that. And they get hung up in that upsetness rather than to look at it and accept it, and then say, “What does that tell me about how reality works and how I should deal with it?” Right? I think most people are upset. They’re stuck in that upsetness and wishing something is different rather than thinking how do they best respond to what is their reality.

RITHOLTZ: That – that’s very zen of you — accept reality for what it is and — and interact with that as opposed to just being upset about the way the world isn’t.

DALIO: Well, zen are practical, I think it is practical.

RITHOLTZ: So, let’s talk about some things that you have helped create some products. Treasury Inflation Protected bonds, TIPS, the U.S. Dollar Future Index, risk parity, the stock market of China, and my favorite, Chicken McNuggets. How did you have a hand in creating all of these products?

DALIO: Well, you know, you just go along with your life and you do the thing you do, and then you come up with an idea. So, in my case, I was at, you know, markets since I was a kid, 12. I played around. I mean, I didn’t know what I was doing in the beginning, but I played around with markets, and I encountered things. So, I used to start off with commodities. I traded commodities — grains, and meats, and all of those things.

And then this McDonald’s wanted to have the chicken McNugget, but they were worried that chicken prices would change a lot, and so then I needed — I worked with a chicken processor who then made chickens and chickens grain, and I showed them how they can work a deal out where they would hedge the grain and so on so forth, and that’s how Chicken McNuggets could come out without — at a fixed and stayed at fixed price.

But anyway, one thing leads to another. You know, then the financial markets …

RITHOLTZ: Right. Wait, I just want to make sure I understand. A hedge on green prices leads to stable chicken prices and, therefore, a consistent nugget price.

DALIO: Right, because the cost of a chicken has nothing to do with the price of the chick. It has to do with the price of the grain that you feed the chick.


DALIO: And so, by being able to lock in that price with the producer, we were able to lock in the price for the chicken for McDonald’s so that they could have stable prices. But anyway, that other stuff, the world evolves and I’m trading, and so then I come into trading financial instruments because then we have the printing of money, and we have all of those other things, so monetary policy becomes a thing. And one thing leads to another, then idea of risk parity is the idea of how I could balance a portfolio well, that I wanted to balance it well. So, one thing leads to another, you know?

RITHOLTZ: Interesting. So, a couple of quotes from you that relate to each of the books you’ve — you’ve written, but I think they’re very revealing about who you are. One is unprecedented question mark. Big developments that haven’t happened in my lifetime, but have occurred numerous times in history. It’s not so much that they’re unprecedented, it’s that we just haven’t experienced them recently. Tell us about that.

DALIO: Well, I learned about this. In 1971, I graduated college and before I went to business school in the summer, August 15, 1971, I’m following the markets. I’m clerking on the floor of the New York Stock Exchange, and President Nixon gets on the television. And he explains that money as we know it ceases to exist because then gold was money …


DALIO: … and paper money was what your claim like a check in the checkbook, you could go get your money. And he said to the world, “You can’t go get your gold.”

And I walked on to the floor of the New York Stock Exchange, and I thought that this is a big deal so there would be a pandemonium. And — and I didn’t, but the pandemonium was rather than go down a lot, the stock market went up a lot the most in a couple of decades. And then I said, wow, I didn’t understand what happened. So, I went back and I looked at history, and I found the exact same thing happened on March 5, 1933 with Roosevelt saying, “You don’t get the gold,” and they print the money, and the stock market went up, and then behaved that way. Now and I learned about the valuations.

So, I started to learn that I needed to go back to things that didn’t happen. So, I studied, for example, the Great Depression. And because I studied the Great Depression, then in — I was able to anticipate the 2008 financial crisis, so we made a lot of money when others were losing money in the financial crisis, but I wouldn’t have that if I didn’t study things that didn’t happen before my lifetime, right?

So, things like the pandemic, let’s think as you start to think about the things …

RITHOLTZ: Unprecedented.

DALIO: … there are a number of things like right now, the reason I did that book is because there are things that are happening now that never happened in our lifetime before, and I want to be like a doctor who knows many cases of those, but I have to go back and see them in history in order to gain that perspective.

RITHOLTZ: Right. There’s a fascinating discussion between – I think it was St. Louis and Philadelphia in the 1918 pandemic. One of the cities was very aggressive in shutting down schools — I think was St. Louis — and advocating masks for everybody, and Philadelphia didn’t. Huge difference in the outcome for that pandemic.

DALIO: Man, I could learn about that from you. You got it, right, but you …

RITHOLTZ: Well, you sent me — you know, in your book — and we’ll — we’re going to get to the changing world order. So, let — let’s talk about something from the changing world order right now. One of the most interesting quotes I pulled from the book, quote, “There are only a limited number of personality types going down a limited number of paths, which lead them to encounter a limited number of situations to produce a limited number of stories that repeat over time.”

So — so you’ve brought that up a number of times in — in some of your previous books as well Hero of a — of Thousand Faces and — and a lot of the Joseph Campbell stuff. Tell us a little bit about that limitation that we see the same cycles, the same stories over and over again.

DALIO: Well, that’s — that’s it. I mean, I think you said it very well. If you look back in history and you read human nature does not change much.


DALIO: OK? Our — it’s — and it’s a major driver. You put a person into a certain set of circumstances, and then you got the reaction, and you’re going to have — and the dynamic like you borrow money. And if markets go up, people borrow more money to speculate on the thing, and then they get over indebted, and then some — there were wealth gaps and there are all these things that happen over and over again. And — but we don’t think about it.

Everybody is almost dealing with whatever is happening to them at the moment and they’re just thinking about it, but think about it like I mean, you could go to anything, OK, and it happens over and over again. It is a life ark — all of our life arks. You’re — you’re born at certain age, your kids go to school. Certain age they — they have kids. You move on. There were these things that repeat over and over again.

And so, let’s look at those things and how they repeat. It’s remarkable. So, it’s almost as though the only things that change pretty much are the clothes people wear and the technologies they use, right?

RITHOLTZ: There’s a truth to that, for sure. And a lot of the clothes are based on the technology, you know, they’re not — they’re not just old flax and — and cotton and what have you.

DALIO: Right. So, what you see, you see evolution if you decompose it. You see that there’s a force of evolution that moves things toward improvement, OK? And then around that there are cycles and give the same circumstances around that, they repeat over and over again. And that’s why in order to understand today you cannot look what happened yesterday, OK? You have to look at what has happened repeatedly.

RITHOLTZ: So, you mentioned we all go through these lifecycles, both as individuals and societies. You’re at the stage of life where you’re writing books, sharing wisdom. What’s the motivation for this act of your life?

DALIO: Well, I think there are three stages in life. The first stage is you’re dependent on others, you’re going to school, you’re learning. In the second stage, you are independent. You — others are dependent on you, and then you’re trying to be successful.

As you move past that stage, your goal isn’t to be successful in that same way before, you want to pass on what you’ve learned and so on, and then you go into your third stage of life where, you know, you’re free to live, free to die, OK? That — that ark is basically it. So, I’m at — I’m 72 years old. And while — my joy is in being able to pass along that which is valuable, and I’ll do that for probably maybe my one more book, which is “Economic and Investment Principles,” and then I’ll be done with that.

And — but I still love the game, but — but that’s where the stage of life is. So, like I did this study because I needed the information to know how to deal with today, and I ordinarily wouldn’t put it out as a book. But I now figure, OK, it’s too important and I think it’ll be helpful for the people to take or leave as they like, but that’s why I’m doing it.

RITHOLTZ: Quite fascinating. So, let’s talk a little bit about the changing world order, and I have to start with the — the U.S. dollar. It’s been the reserve currency for quite a while. Do you see that changing anytime soon? And is that part of the changing world order?

DALIO: You know, it was that question that led me to study what causes reserve currencies to rise and fall and to go back for the 500 years because you need the cycles, and these cycles have long lasting cycles. So at first, it was the Dutch guilder, then it was the British pound, then it was the U.S. dollar, OK? And what is that dynamic to answer that question?

So — and then it brought me into contact with all the things that matter. What were they doing economically? How — what percentage of world trade where they? How strong were they militarily, the whole package? And that’s what the book then takes one through took me through that journey. That was my exploration.

So, what you find out in history is that there is the — the world order that we began began in 1945 …


DALIO: … the end of the World War I mean, New World Order. The United States owned 80 percent of the world’s money because the world’s money was gold.


DALIO: And the United States had 80 percent of the world’s gold. And so, that gave it the reserve currency. It was also had all the economic power. It was more than half the world GDP, and it also had the only military. It had nuclear weapons and so on. There was no comparison. Hence, we began the American World Order and the U.S. dollar going with that, OK?

And then there’s a cycle, and I saw the cycle. As those — as the economy grows and you have prosperity and so on, it’s self-reinforcing. That’s — those are the good years. After the war, nobody wants to fight the opposition and you build this, but you get into a period where then it becomes, when you have a reserve currency, others want to hold it as an asset, so they lend to you. And you can borrow a lot of money.

RITHOLTZ: Wait, does this trace back to where the Dutch …

DALIO: Same thing …

RITHOLTZ: … jetters (ph), the — the British jetters (ph) …


RITHOLTZ: … the Spanish jetters (ph)?

DALIO: Yes, every time.


DALIO: OK? The same pattern begin. There’s a war, you win a war. You become the dominant power, also technologically and so on.

The Dutch, for example, invented ships that could go all around the world …


DALIO: … and collect all sorts of treasures, but in order to do that, they had to have a military. And then when they went around, they got to pay in their money and it became the world’s reserve currency because they want – they were trading all over and they can do that, like the United States, like the British, and so on.

RITHOLTZ: So, wait, let me interrupt you. Technological advancement leads to military superiority, leads to booming trade, leads to economic dominance and reserve currency …

DALIO: That’s right.

RITHOLTZ: … and how long does that tend to last?

DALIO: That ark, it can vary, but it’s usually somewhere in the vicinity of — the total empire is like 150 years, on average.

RITHOLTZ: Right, so — so the Romans were an exception because they had all of that …

DALIO: That’s right. They …

RITHOLTZ: … and they lasted much longer.

DALIO: That’s right. They lasted about 350 years, 325 years or something. But you can take each of those, so there’s a variation around those.

But anyway, you’ve got the pattern. And so, to answer your question about the reserve currency, then what happens is the country gets into — deeply into debt, OK? And — and then with that, it runs deficits because it wants to spend more money and wants to maintain that position, but it does — but those deficits mean that it’s earning less than it’s spending and it’s required that debt money.

And then when you get down to a zero-interest rate type of situation where — like we’re in, then we need more debt because everybody wants more money. So, the government has got to send out more to checks, and you — as always, you either have to get that money from somebody, which means you have to get taxes. But when people get that — get taxed, they get angry. So, what always happens at that point is you send out the money and you print the money, OK? And then there’s the mechanics of the printing of that money.

So right now, we have a situation where there is a lot of debt and a lot of dollar-denominated debt in others — foreigners’ portfolios because they’re holding it because the reserve currency is what it is, and there’s low interest rates. Now we can get into how that compares with other currencies, but what happens is the dynamic that we’re seeing causes all currencies to depreciate in value. Money is being produced and so on, and that has — because more money is being produced, then goods and services are being produced, that causes the value of money to go down.

And that’s why when you look at what your interest rate is, you know, there’s a big problem for investors because they think cash is safe because it doesn’t have the volatility, but they’re only looking at it in terms of dollars. But inflation happens, OK, you print money. And then inflation happens and it takes your buying power away from you because you can’t increase your living standards by printing money.

And so, there’s a chapter in the book that shows that that is the value of money, and it takes it over these 500 years. It looks at 750 currencies. It shows how they all behave and the pattern is the same. Yes, that’s the pattern.

RITHOLTZ: So, here’s the pushback, and I first thought about this with “Big Debt Crises” because there was a smaller section about money printing and inflation in — in that book. But the pushback is I’ve been hearing my whole adult life, gee, if we run deficits, inflation will get out of hand, the fiat currency will collapse. It’ll crowd out private capital. No one will be willing to lend money to the government, and the cost of borrowing will be much higher. None of those things have happened yet.

DALIO: But — and I said that when I did the — I put out a video called “How the Economic Machine Works,” OK.

RITHOLTZ: Which is — which if you haven’t seen it, everybody should absolutely watch it. It’s — it’s both entertaining and informative.

DALIO: And the main reason I put that out was that right then at that time, there was the question of whether too much money was going to do it. If too much money make — if money makes up for credit, that the total value of anything, the price of anything equals the amount spent on it, and it could be money or credit, divided by the quantity of it sold.


DALIO: So, if you look at — if I increase money or credit, buy more than I increase the goods and services produced, you will have inflation in goods, services or financial assets. That’s the machine.

So back then, I — I made the point intentionally at that that it was OK to print the money to make up for the fall in credit meaning …

RITHOLTZ: Because of the shortfall during the financial crisis.

DALIO: That’s right. If there’s a contraction in credit, there was a losing of spending power.


DALIO: And so, if money is — is produced to neutralize that contraction in credit, so the amount of spending goes — does not contract, you will neutralize that. I call that a beautiful deleveraging.

RITHOLTZ: That — that’s right. Now fast forward 12 or 13 years, the pandemic starts and now instead of monetary printing, there’s fiscal spending.

DALIO: There’s both, right?

RITHOLTZ: Well, yes.

DALIO: So — so we look at the mechanics of it. I just want to go with the mechanics. The amount of money and credit created is much greater than the amount of goods and services incrementally produced. And so, then people decide, they get their checks and the way they get their checks, the government sends out the checks …


DALIO: … or — and — and then the Federal Reserve makes up for the shortage of demand, and it produces that money in credit.

And so, then people decide, do I buy a financial asset? Do I buy this thing? Do I buy that thing? But that produces the reflation that we have seen along those lines. So, the difference between that is that the total spending power and the total amount spending increases much greater than that, which is needed to make up for the contraction in credit.

RITHOLTZ: So, from ’08-’09 we saw the shortfall filled by the Federal Reserve. In 2020, we saw the shortfall in demand filled by Congress and the Federal Reserve …

DALIO: But it takes both.

RITHOLTZ: … but then here we are a year later when things seem to be a lot better than they were, and now there’s a ton of cash circulating through the system, and we’re seeing signs of inflation everywhere.

DALIO: Oh, yes, right.

RITHOLTZ: Mostly goods, but also services.

DALIO: And financial assets and …

RITHOLTZ: Well, for sure.

DALIO: … everything because think about it today, right now there’s an enormous amount of liquidity. If you have — and so everybody’s got liquidity. And in addition, it costs nothing to borrow because the interest rate that you’re going to pay on it is — is — is negative in real terms …

RITHOLTZ: Right, right.

DALIO: … is much below nominal GDP growth.

RITHOLTZ: It’s free money. How else can you look at it?

DALIO: And you can even get interest-only loans that means you don’t have to pay the principal.


DALIO: So, you don’t have to pay the principal, and there is no interest practically.

RITHOLTZ: Sign me up. Where do I – where do I sign up for that?

DALIO: OK, that’s the point, right? And so, you’re given an unlimited amount of buying power and so on and money, therefore, that purchasing power, the amount of money and credit is now coming through to produce. What do you do with the money? You buy stuff. You buy — OK, by financial — good, services, and financial assets. And so, it goes up relative to the value of money. It’s not complicated.


DALIO: But that’s what’s going on, right? And that’s what people have got to understand.

In chapter — I think it’s Chapter 3.

RITHOLTZ: Wait, before we leave this though I want to ask you, so how long does this go on for? Is this transitory as we’ve been hearing so often? It kind of fades when …

DALIO: Well, I …

RITHOLTZ: … the supply chain untangles or is this going to persist for years and decades?

DALIO: This is not a supply chain issue. It’s a very simple thing. Take the amount — the increase and the amount of money in credit, and divide it by the amount of goods and services increased, and you’re going to get a good indicator of the …

RITHOLTZ: (Inaudible).

DALIO: … amount of monetary inflation. OK?

RITHOLTZ: So — so we have a high GDP and a high CPI …

DALIO: Well, you have in GDP terms the real goods are a bit higher than they were, but yes, that’s right.

RITHOLTZ: These people were stuck at home and they couldn’t go to the movie theater or the gym or whatever.

DALIO: So, we’ve come up to where we were above the COVID level, but we’re approaching our limits in terms of hiring people, in terms of getting stuff done. There’s a demand that’s pressing up against the supply, but there’s also this monetary inflation going up.

And that’s why in that chapter in the book, like if I didn’t see this happen over and over again …


DALIO: … I never would have seen zero-interest rates and how this dynamic work. But this dynamic happened over and over again, and it is — I think it’s Chapter 3 or 4 in the book. It goes through the value of money and you could see the mechanics of it.

RITHOLTZ: So, does it make you crazy when you hear people say,” we — we’ve never had zero-interest rates before,” and you go, “No, we’ve had it hundreds of times. Go look in the table.”

DALIO: Of course — that’s right, just — and look at the dynamic.

RITHOLTZ: Huh. So — so let’s talk about cycle disorders, and you specifically refer to — so we talked about debt. You talked about internal cycle disorder and external cycle disorder. Let’s start with external because I — I find that more fascinating.

For the first time since the U.S. has been a dominant superpower, we’ve encountered a true rival. Yeah, the Soviet Union was a military rival, but they never were a true economic rival.

China, on the other hand, is becoming a rival in power in the United States economically, militarily, and strategically. Is China the biggest external threat to the U.S. hegemony?

DALIO: Yes, of course. And — and I’m saying it’s not — it’s just history happening over and over again.

RITHOLTZ: They’re just the next one in line.

DALIO: OK. And the United States is the next one — OK. There is a — a world order. It’s — you have a war. Somebody is dominant. They have the currency. They have the — all of that, they have the power. They’re the largest trader. So, like you can — you — you — United States was the largest share of world trade, and it brought its currency and you have that, OK?

Now, China is the largest share of world trade. And financially, it has that. So, it has become an economic competitor, OK.

There are four — there are really four types of wars. Well, particularly, there’s a trade war. There is a technology war. There is a geopolitical war. And there’s a capital war, OK, competitions so we can call them wars are competitions, straight competition. And then there could be a military war, number five.

And we are certainly in those competitions or wars for trade, technology, geopolitics, influence around the world, and then capital in terms of capital markets. We are in that kind of war or that kind of conflict. You have a real competitor.

So, think about it this way. If the population of China is more than four times the size of the U.S. population, so with per capita income is half the size of the United States, it will be twice as large as the United States, and it’s developing competitions all around. So yes, there is a competition. And then how that’s dealt with is most important. There — you could look at it as a conflict between those two entities.

The most important thing to learn that about is don’t even focus so much on that conflict as focusing on being strong yourself because the lessons from history show that if you are strong, if you’re strong in these fundamental ways, you earn more than you spend. You work well together and you are strong, then all threats, whether they are pandemics or Chinese competition or whatever it is, you can handle. I’m really concerned about the internal conflict and the financial conditions that mean that we are less strong in dealing with that kind of a competition.

RITHOLTZ: So — so let’s move to the internal threats. We — we have political gaps, we have wealth gaps. Arguably, a lot of our values around the country no longer align. At least the media seems to be emphasizing the difference. What does the discord in the United States, in some part driven by social media, but just generally the emphasis on differences instead of similarities? What does this mean for the strength of the country?

DALIO: In my book — my research, it was so important to put numbers in actual measurements to be able to see things like discord. So, I put together a conflict gauge. I put together lots of gauges that, therefore, give objective readings to that.

We now have the largest political gaps, and the largest wealth gaps, and largest income gaps since 1900, OK? And — and if you measure the conflicts that we’re encountering, we have a system that — we are at each other’s throats, right?


DALIO: And basically, what I’ve seen through history is if the causes that people are behind are more important than the system, the system is in jeopardy. So, you have a situation right now that we — forget about history, you can see it, but it also repeats throughout history. You can see how we’re going to more and more extremism. And we’re approaching an environment in which no side will lose, OK? It’s win at all cost.


DALIO: And so, what we’re seeing in the primaries, you’re going to see more movement to the extreme. Each — each party is — is putting on candidates to be more extremist candidates in that fight. So now when we set up for the presidential election, we are going to have a fight. And — and — and it’s win at all cost.


DALIO: It’s not going to be that, OK, I lost and, you know, we can interpret it like in some past elections when we had closeness and, OK, how you count chits and how many of those …

RITHOLTZ: Heavy chats, right.

DALIO: … heavy chats, yeah.

RITHOLTZ: Yeah, 2020 was very different than 2000.

DALIO: OK, and so on. And — and we’re in a win at all cost. So, the causes that people are behind are more important to them than the system to work out that. And so, we have a jeopardy. And that also — that jeopardy that we’re in is affecting a lot of things.

We see this. My — my wife works in helping the poor school districts in Connecticut with disadvantage (inaudible). The amount of the circumstances that are existing for those kids in those education in — in the richest state in the country is you’ll pay — I live in Greenwich, Connecticut at the school districts like $24,000 per student. Down the road, it’s $14,000 and there’s a problem. So, there is a — there were conflicts — justifiable conflicts in many cases, not equal opportunity, not — you know, and — and the system is — so we have those things going on.

And the most important thing, as I say, the three most important things, first, how are your finances, right? Down to — whether it’s the individual or the company, how are your finances? Are you earning more than you are spending? And you have savings more than liabilities.

Second is how are you with each other. Is that productive or are you going to fight with each other? And that repeats throughout history. You see it over and over, and our ratings are not good now.

RITHOLTZ: So — so there are some folks who have been saying a lot of what we see in terms of the divide are sort of the outrage industrial complex that between certain cable channels and certain social media, they feed off and their algorithms feed off this anger, but when you actually sit people down and ask them questions, there’s a lot more that we have in common than, you know, we want a safe place to raise our kids, and we want to send him to a good school, and we want opportunities to improve our financial circumstances, et cetera, et cetera.

When — when you take apart of the streaming on cable TV and Facebook, there is more that holds us together than takes us apart …

DALIO: The statistics don’t show that, OK? There’s the — there’s the …

RITHOLTZ: Oh, really? So, explain.

DALIO: Well, so I mean, there are just lots of statistics. If you take voting, the voting of the Senate and the House, and you take Republicans and Democrats, the — the Republican voting records — this goes down to 19 — back to 1900 — and you measure how conservative that is, that’s the most conservative since 1900. And then if you measure how liberal the Democrats it is, the Democrats are the most leveled, so the gap in values is greater than it’s ever been …

RITHOLTZ: Ever before.

DALIO: … in terms of that. And if you measure the voting across party lines the capacity to compromise, it’s the least it has ever been.


DALIO: OK. So, what we have are irreconcilable differences. If you take survey results of what Democrats think of Republicans and what Republicans think of Democrats, you see I — I — I’m out of — I don’t know whether it’s the Republicans or the — but 15 percent of Republicans wish that Democrats would die and 10 percent of Democrats (inaudible), and I might have gotten that backwards …


DALIO: … but you get the idea. But — but — but right …

RITHOLTZ: But it’s a — it’s a substantial percentage wishing ill.

DALIO: … and — and a significant number wished that would not want their children to marry …


DALIO: … another — OK.

And then if you deal with irreconcilable differences, I want to tell you that I had a conversation. I won’t mention who with, but somebody who is very high in government than — and a general and so on, and we were talking about enforceability …


DALIO: … of will the federal government’s mandates like on sanctuary cities, what happens? As we go through those scenarios, we are playing out …


DALIO: … the notion that the federal will say you — I need you to do this, and the state or the local government will refuse to do that, and you are now having a power — power thing.


DALIO: How does — and then we play the — we — we play through that scenario, like does the police have more power because the police will follow that, then the National Guard and how will the National Guard. The fact that we are talking about those things …


DALIO: … and that we are looking about those things. If we — if we look at what’s actually happening measured in the statistics or noting in the news, we are at irreconcilable differences on many things. And if you just even deal with masks, OK, and anger …


DALIO: … that exists with people doing harm to each other …


DALIO: … and how they are behaving.

And that is — and if you look at history and you watch the trends, the arks, and you watch how it’s evolved, in almost all of these cases, you can — it could be the French Revolution, the Russian Revolution, the Chinese Revolution, you find that there are moderates, but then it becomes increased polarity, and they say you have to make a choice …

RITHOLTZ: Pick one of these.

DALIO: … which side are you on, and you can’t be moderate. The moderate will then get hung or the — there’s a certain dynamic that happens. And it depends where you’re living. You will see it whether you’re — if you’re many of us might live in an environment and we say we don’t actually see this, but you could start to see it encroaching. You start to see the movement, for example, from one state to another state not just for tax reasons, but because they say my values are different here and there.

And then that has economic effects because, let’s say, the rich move with the rich to states that favor the rich, by the way, and then it produces a hollowing out of the tax base that is lost there, and that creates a worst set of circumstances. That is a dynamic that is going on now that has not existed. But if you read history, you will see that that’s happened repeatedly over and over again.

RITHOLTZ: So, let me push back a little bit, and I had to think hard to find something to push back on. So we had civil unrest in the 60’s. We had economic problems. Remember Japan was going to take over the world. We had inflation in the 70’s, the rise of Japan as a power, and then the United States somehow managed to overcome it through entrepreneurship, and technology, and blah, blah, blah. That was one cycle. How do we know that the current environment is in a similar cycle?

DALIO: Well, let’s go through what that cycle look like …


DALIO: … first of all, to say, OK, if that’s your optimistic scenario, OK, let’s take a look at what that cycle look like, OK? And then say — and then — and then I’m explaining that certain of the circumstances now are worse, but let me get — let me take that cycle, right? 1966, 1967, ’68, Martin Luther king is shot. JFK is shot. Riots (inaudible). The dollar then — spending on big deficits, buns and butter.

And then we — then devalued. In other words, I’m clerking on the floor of the New York Stock Exchange …


DALIO: … and they — and they devalue and they break that. And then we went through the 70’s, and the seventies caused a decade of very large inflation, and the negative returns in the stock market from 1966, which is the first time the yield curve inverted until 1984. You had negative real returns …


DALIO: … in the stock market. In fact, it went down 54 percent in real terms and so on. And then you get a restructuring.

Then you have the reaction of Paul Volcker, 1979 or whatever. You have the debt crisis, which brought the unemployment rate up to double-digit …


DALIO: … and so on. And then you — and you — and then you broke the back of inflation, and it ended in ’82. That’s your optimistic scenario that you’re referring to.

RITHOLTZ: Eighty-two …


RITHOLTZ: … to 2000 worked out pretty good.

DALIO: Oh, oh, OK, OK.

RITHOLTZ: So that’s a good …

DALIO: But that’s your optimistic scenario.

RITHOLTZ: Right, right.


RITHOLTZ: So, you’re looking at the 70’s, I’m trying to look past that.

DALIO: OK, but I’m just saying we can’t — OK.

RITHOLTZ: It was a bad decade.

DALIO: It — it happens one — you know, this thing happen one day at a time or …


DALIO: … one year at a time, and OK, I remember the 70’s, OK.

RITHOLTZ: And it was brutal.

DALIO: And that was that — and that was — but that didn’t have the same sort of things that are happening now in the same sort of degrees. My only point is I’m not trying to fork it. Let me tell you, I believe it’s a choice.

RITHOLTZ: So, there was a datapoint that I was really impressed with from the book that I had no idea, and I — I want to ask you this question as a follow-up of what we were talking about earlier.

Ten great nations going back a few 100 years since 1900, seven out of 10 of these nations saw their wealth wiped out at least once. That — that’s a pretty astonishing datapoint. The wealth of an entire nation wiped out. How does that happen? And what is the aftermath like?

DALIO: It’s so good that people can see these cycles starting — we start like in 1900. Our perspective does not include these things, and when you start to see it at the cycle, it’s quite something. So, what happens is there’s — here’s how it works. Capitalism and a capital market is a fabulous system for getting resources in the hands of entrepreneurs and inventive people, and it raises living standards, particularly after a war when there’s a peaceful period, and you’ve done the restructuring, and things improve.

And so, if we go back, let’s say, to the 1800’s and take 1850 and so on, we have the industrial revolution that — the power of the individual and so on and it — and it rises. That — but what happens is it also creates wealth gaps, and it creates opportunity gaps because those who have more money can educate their children better …


DALIO: … can do certain things, and it also creates greater levels of indebtedness because as the cycle goes on everybody bets on it increasing and so on, and they get more in debt and so on. And you turn the 1900. You come into 1900.

And then you start to see the conflict begin to emerge. This is when the bad treatment of workers and — and workers’ rights. And — and then that’s when …

RITHOLTZ: Child labor.

DALIO: … child labor, and then also taxes start to rise, OK? We didn’t have an income tax, and then they start to rise at — but there’s also an anger and — and that begins to emerge. And then there is the conflict and there’s economic pain and conflict. I mean, it’s a — when you have a big wealth gap and you have economic problems, you have a conflict that’s a — that’s a classic set of ingredients, particularly than if you have too much debt, you’re going to have a problem.

So, what we see is then you come into that period and the pendulum swings the other way that people get angry. You go — you saw that in 2008, the anti-capitalist.


DALIO: You can certainly see the anti-capitalist. The — in other words, the billionaire is no longer the inventive person who gets what they deserve kind of thing, they’re really more OK the greedy, and — and they’re living sort of decadent lives while at the same time as people are not getting educated and so on …


DALIO: … people get angry. And so, you see that kind of an ark capping repeatedly, right? So that’s the nature of the beast in terms of that cycle.

RITHOLTZ: So, here’s the big question, are these cycles inevitable? Is our fate sealed or is there something we, as a nation, can do to break what sounds like a very self-destructive cycle of external competition, excessive debt and internal strife?

DALIO: Yes. No, it’s in our ability to deal with that as — as a society because in the book I — I show the five major determinants, but I also show 18 determinants. And they are predictors of the next 10 years’ growth rates and — and conditions. There — and so you could see them. It’s like a health index.

RITHOLTZ: Right. So, it’s education, innovation and technology, cost-competitiveness, military strength, trade, et cetera.

DALIO: Right. And what I did is I put numbers on that so you can see the graph and are they improving or are they worsening and so on. So that’s a health index that I hope everyone would look at and even judge their leaders by. Are we getting better or are we getting weaker? And — and what is the conflict?

But if I’m going to not take you through the — all the 18 in the book, I just want to say that like there were two — there were few basic ones, OK. Most importantly, can we earn more than we spend? I mean, can we have not increased the amount of indebtedness? And — and — and — and they do that …

RITHOLTZ: I know GDP is greater than the expansion of national debt.

DALIO: That’s right. If the IOUs continue to build up and — well, you can’t raise living standards by producing credit and — and money. It’s a basic thing. However you do the accounting, whatever monetary system happens, Barry, you can’t sustain yourself or your family or you — a country cannot do that by spending more than you’re earning. It won’t go on for a long in one way or another. However much you want to print the money, however, it’s not going to work.

RITHOLTZ: Right, it doesn’t — doesn’t make a difference.

DALIO: So — so you have — you have to get there. So, we need to both — we need to be productive, and we need to expand the pie. and we need to divide it well so that it works for most people.


DALIO: OK, that’s just a — that we need to do that, OK? And we need to do that in a way where we’re cohesive, that we’re not at each other’s throats. And we could do this.

I believe like — but you need to be bipartisan. In other words, you — you can’t fight and kill each other.


DALIO: That’s a basic kind of thing. You got to resolve your differences and row in the same direction. And you’ve got to do that in a financially sound way, right?

Now all the other components that I mentioned, all of those 18, are really to try to get at that. How do you get a — a better education? And — and part of the education is not just the — do you know the facts and do you know how to do calculations. It’s also do you know how to behave civilly with each other. How do you raise children to behave civilly with each other? And that kind of education likes us work together in a smart harmonious way if we can do that.

But that’s the — there’s enough money to go around, and there’s enough ability to do this. And I would say like if I was president of the United States by way of example, what I would do is I — I’d have a bipartisan cabinet or something, and I would — I would take representatives from both sides, and I have the equivalent of a — a Manhattan Project or something. And say you go away for six months and you figure out what you’re going to agree on, OK …

RITHOLTZ: And we’ll do that.

DALIO: … and we’ll do that as — and — but number one, it’s got to be productive and it’s got to be harmonious. And if it’s productive and harmonious, we can do that.

And so, — or you can look at however you get to those ingredients. You get a better infrastructure, you get a better education, you have those 18 ingredients. That’s the beauty of those ingredients. Those — I’m going to be updating that on the website all the time.


DALIO: So, for those who care to watch that …

RITHOLTZ: Tell us what the website is, by the way.


RITHOLTZ: So — so I’m fascinated by the …

DALIO: Or, I forgot which.

RITHOLTZ: But it’s easy enough to Google.

DALIO: Yeah.

RITHOLTZ: You can find Economic Principles. I’ll include it in the write-up so people can click on that.

So, I’m kind of fascinated by the discussion of China as a threat and — and as a rising world power, but there are two — again, a little pushback. First, over the 5,000-year history of China, most of that history, they were very inward-looking. They weren’t expansionary. They weren’t challenging. They kind of did their own thing and ignored the west. That seems to be a substantial change now even though they were a rising technology country and a rising military power thousands of years ago. What’s different today that’s changing the way that you see their role in the world?

DALIO: I’m glad you asked the question. I’m going to give you a few things. First, back then, the world was a much more enormous place. It took in a — at you could travel 25 miles in a day.


DALIO: Today, you can travel to the other side of the world in a day.


DALIO: OK? So, we’re all intertwined in so many, many different ways, so that’s a big difference in terms of — that was a big space back then, and they had an ocean on one side and mountains on the other side and a big open plain like the United States then was a big open plain and so on. And we also were not involved then and other countries weren’t because the world was a much more gigantic place.

But just as we, today, the United States is in — has military bases in 70 countries. And so, we are around the world, and the world is like that and it’s much more intertwined. Military trade, everything is along those lines, that’s a change. OK?

Now, I’m lucky because I spend — I’ve spent a lot of time in China and I’ve gotten to learn from Chinese leaders and so on that perspective and so on. But it is a kind of an evolution of an opening up.

They do not want to be aggressive. There is a Taiwan issue, OK.


DALIO: OK, that’s a whole other thing. But by and large, that — but there — there will — there will …

RITHOLTZ: Well, let — let me — let me …

DALIO: … but let me finish answering …


DALIO: … your question, OK, that there is — but the notion of expansion, and — and being in trade, and being there is part of their evolution. And so, when we look at mechanically the great rivalries that have happened — great empire rivalries, they — even back for a long, long time even though they were closer together, they bump into each other.


DALIO: And then how did they resolve disagreements? There is no world court that you go to when you say that you’re going to do it. You have conflicts, and then it’s a test of power. And that is the dynamic that we’re experiencing.

RITHOLTZ: So — so I wanted to ask you about Taiwan because it’s not that hard to see how China engages in a military action around Taiwan and the U.S., and — and the E.U. get involved, and that could spiral very quickly into something pretty awful. You’re suggesting they’re not trying to force a military conflict around Taiwan.

DALIO: No, I — I — I just want to be clear. I said Taiwan is I think the biggest risk, OK, because — OK, there’s — there’s two views about Taiwan, right? Their view was since Henry Kissinger started the meeting in for a long time, there was a saying that there is one China, and Taiwan is part of China, OK. And — and they have a history in their mind of what they call the 100 years of humiliation …


DALIO: … that began around 1840. And then that point time they were weak and other foreign countries came in, and then they had — they sold them opium. They had the opium wars and all of that, and then they had the collapse. And they view that as taking away their sovereignty. And so, they view Taiwan as a part of China and that sovereignty, and — and that’s something like just we don’t — we can argue with it or — or not, but you just have to understand that that would be like I don’t know …

RITHOLTZ: Ukraine and Russia.

DALIO: … more — more — more than — more than Alaska or Hawaii …


DALIO: … for an American, OK?


DALIO: More than that, OK, that kind of thing. So, it becomes one of those uncompromisables (ph). I can tell you stories like when they went to the Korean War …


DALIO: … they thought in the Korean War that they would lose the Korean War because they basically didn’t have hardly any weapons. We had nuclear. But when it comes to the element of sovereignty, that is something that is a big deal and that they will fight for. And so, the other side of that is what does it mean for the United States and so on in terms of, you know — OK, how is that going to be dealt with? That’s what Taiwan is.

Now, how that’s resolved? You know, I don’t know, but it is a big issue and it is a big risk. That’s — that’s a — and oh, and when, and I — you know, we all have our scenarios of how that is.


DALIO: But that’s — that is one. Beyond that, then there’s the evolution and the basic evolution like one company competes with another company, one country competes with another country for world shares and so on, and then how do you play the rules of the game, and everybody is going to argue over how you play the rules of the game. But the thing is there is no real rule book.


DALIO: We had a World Trade — it’s not like when they had a trade dispute they went to the World Trade Organization and said, “I’d like you to adjudicate it.” OK? We don’t have a world court.

When you leave a country and you see how the world operates — countries operate, it is more of a power game than it is a let’s follow the fair rules kind of game, and that creates the dynamic for the world that we have.

RITHOLTZ: So, the pushback about the rise of China that I’ve heard from others is something like this. It’s a centrally planned economy. Free market capitalism is a much better system, and eventually, China’s central planning is going to make some mistakes, which will allow the more competitive and open economies to — to not allow them to pay us. And besides, how can they ever become the reserve currency? Look what they just did with Alibaba. No one is going to trust them. Who’s going to say, “Sure, let’s make the yuan the reserve currency.

We totally trust the central leaders in — in China. What’s the response to that?

DALIO: Two things. First, it’s a non-informed response and I can respond to really what it really is like, OK? But second, let’s assume that’s all right, then we don’t have to worry because our system will be better than their system and will outcompete them. And that’s the most important thing, right?

Now, you could …

RITHOLTZ: Arguably, it worked with the Russians, right, the Soviets?

DALIO: … you — you could — you could take that for granted or you can see the reality. Since I started going there in 1984, per capita income has increased by 26 times.

RITHOLTZ: Amazing.

DALIO: The life expectancy has increased by 10 years. The poverty rate went from over 88 percent to less than one percent, OK. And if you look at history through China, it’s a — a hell of a track record.


DALIO: OK. So now you — we could sit there and say, hey, no problem, because those — those system doesn’t work or you could look more beneath the surface …

RITHOLTZ: The data says otherwise, right.

DALIO: … and say, OK, how is that working?

And I would say when you look at that, no, no, there’s capitalism. There’s plenty of capitalism in China, OK, the second largest capital markets. They are printing billionaires. They are having — they — the inventiveness in terms of their technologies and all of those things, those are realities, OK? That notion of how it works.

When Deng Xiaoping — Deng Xiaoping, you know, the idea is this. Here’s a Communist Party and then — and he’s got all this capitalism coming around, and he’s encouraged them. He said two things. It’s glorious to be rich. And then when asked about this, he said, “It doesn’t matter if — if — if — if it’s a cat. It doesn’t matter if it’s a white cat or a black cat as long as it catches mice.”

In other words, if it makes money …

RITHOLTZ: If it works, it works, right.

DALIO: … if it works, OK, if it raises living standards. So, there’s a practicality …

RITHOLTZ: And that certainly is (inaudible), yeah.

DALIO: … that’s a practicality that is existing there.

Now, if I was to take the individual moves that are happening now in China and at which people are characterizing them as something, and I’m saying from — I could explain what they are and what they really thought about, but they’re not as they are stereotypically characterized. And I’m not trying to argue pro-China or anti-China …


DALIO: … I’m just saying don’t miss understand China. But anyway, if you think it’s going to happen, then don’t worry just because your system is — our system will be fine, OK. We’ll work well with each other. How are we doing on the things that I’m mentioning? How are we doing on earning more than we are spending? How are we doing on we are working well together and our system is …

RITHOLTZ: Not good, not good, right.

DALIO: … good, OK.

But anyway, the — most importantly, we’re at war with ourselves, OK?


DALIO: If we can do ours — if we can be strong and we can do that, that is the best antidote to everything — to — to pandemics, to ops — adversaries of any form, just get the — let’s get to focus on us being strong, I think.

RITHOLTZ: Quite, quite interesting. Let’s talk a little bit about the state of the economy today. One of the questions I enjoy asking you, and I think I’ve asked this several times, what macro trend do you think is not getting the attention it deserves?

DALIO: The decline in real rates and real returns, and the supply and demand of debt and money, OK. I think that people think that they look at their amount of money in — in nominal terms and not in real terms, and they look at their wealth in nominal terms not in real terms. So, when they are holding cash or holding a bond and they’re saying that is stable that they are not paying attention to the depreciated value when everybody else in other ways is getting rich around them, they’re losing the side of that. So, they look at it in nominal terms and they look at it in their currency eyes.

If the number of dollars I have is greater than it was the day before, I — or the same, I feel good, OK? That’s — that’s — that’s not enough — they’re not paying enough attention to that. And also, the supply and the demand for money and how that affects inflation and so on. In other words, the calculation that the U.S. government will have to sell a certain number of bonds, and then to look at who are the buyers of those bonds, who owns how much, and what are their motivations, and will they buy those bonds. And if they don’t buy an adequate amount of those bonds so that the Federal Reserve is faced with a choice of interest rates rising and shutting the economy and the markets down or printing more money, what will they do? Well, they’ll print more money. And what will that do for the value of money? That — those perspectives are not well-known — well-understood and yet they are the most important perspectives.

RITHOLTZ: So — so let’s talk about something that has been pretty significant since the financial crisis, which has been the rise of DeFi, and crypto currencies, and blockchain. In a lot of ways, some people are positioning that new asset class as a response to exactly what you’re describing — centrally controlled money supply and the — the printing presses running. What — what are your thoughts on — on crypto generally and — and DeFi?

DALIO: Well, first of all, good idea. I mean, don’t trust the governments in that way.

RITHOLTZ: No matter which one you’re talking about.

DALIO: No matter which one. This — it’s been such a history. Almost always before there’s a devaluation, there’s a promise that I will never devalue. I mean, I’ve — I’ve — there’s been an experience. And so, when it comes down to what are you going to do, in the end, every currency has either been destroyed or devalued, OK?

And so, when — that’s what they do in the middle of — when you’re in a crisis, or do you have a depression. That’s the choice and you don’t want to have the depression, so you print the money to make it easy to pay back the debt.


DALIO: OK. So that set of circumstances arise. And thing — and the development of crypto, first of all, the blockchain technology is revolutionary in many, many ways. And — and so that’s I think fabulous, and then it’s really quite amazing that the programming of it and everything has stood the test of time in terms of not being hacked materially, not …

RITHOLTZ: So far so good, right?

DALIO: … so far so good. And it — and being a store value. Now, so …

RITHOLTZ: About a one, but there are stable coins as opposed to everybody looks at bitcoin, but there are stable coins that are tied to specific currencies.

DALIO: Yes, but that will be the problem.

RITHOLTZ: What about central bank …

DALIO: But — but — but I just wanted to — I just want to …


DALIO: … finish that — that — that answer. So, it’s come a long way and it’s a new generations alternative to gold.


DALIO: I think the new generation is making a severe mistake to think that it should be all bitcoin kind of thing and not …


DALIO: … get the balance maybe just like the old — old generation …

RITHOLTZ: In other words, an index of different …

DALIO: Meaning, well, there’s — what — what are the things that are like money, that are going to work like money …


DALIO: … that right you can carry them around in your pocket, go from one place to another, and — and that they recognized all around the world as an alternative currency. Gold is one of those things, right? So, it’s an alternative gold and so on. The diversification properly, central banks won’t use it. It will not be the – the same, but – and it’ll be a threat.

What — what — what — stable coin, if it’s a — a transactional thing is not — and it remains in the currency so the government can control its currency and deal with that issue …


DALIO: … will be functionally OK, but it won’t get you around the risks that we’re talking about in terms of the debasement of the currency. So that’s why when you’re dealing with the other — but if it gets you around that, it becomes a better currency. And when that becomes a better currency, it’s a threat to the governments. And like the currency, the ability to print currency and to operate that way is the greatest power almost that a government can have. And so, that — so something like bitcoin’s success will be dependent on that.

It also, of course, has its dynamics. It is speculative market, all of that.


DALIO: And that dynamic is one thing.

If I start to look at how much it — how it’s priced, you know, the way I look at it is if — since the supply is not going to change much, you can just look at the demand. And right now, the total value of bitcoin, which is, you know, let’s — roughly $1 trillion …


DALIO: … let’s say is — and if you take the total value of gold, excluding what’s used for jewelry and excluding what’s used for …

RITHOLTZ: Industry, yeah.

DALIO: … central banks, it’s about $5 trillion. So that would mean that it would be, if you had a portfolio, it would be sort of an 80-20 portfolio.


DALIO: And so, that’s kind of like when I look at it and will it be a larger lesser share, I can’t tell you.

RITHOLTZ: Well, that’s been that ratio has been changing over the past couple of years.

DALIO: No, but that’s what I’m saying. So — but if you were to say step back and you’d say, “OK, is it going to increase by five times as some people?” then we’ll — I can’t — it can’t imagine because — but maybe if you moved into a world where all those kinds of assets were the rush to, maybe it works that way.

It — like gold is also a dead asset. There’s no — there’s no inventiveness in it.


DALIO: There’s no …

RITHOLTZ: There’s no income stream, there’s no production, there’s no growth.

DALIO: Right. When we look at other assets, as we’re taking a look here, there are also — an inflation hedge asset is also great productivity, OK? Stocks — in the right kind of stocks, when there’s inventiveness, the stock will get redenominated whatever it is.

RITHOLTZ: It goes higher because of …

DALIO: Right.

RITHOLTZ: … the productivity.

DALIO: And then it has productivity in it, and productivity is a fabulous resource. So — so that’s important. The — but always, in all of those assets like you — what you would want to do is say how expensive is that productivity, so then you get down do your calculations. You know, you got back, OK, if I’m having a — a fabulous growth stock that they cause fabulous inventiveness and they’re doing wonderful, wonderful things, then I have to look at, OK, how much is that discounted? Because the other thing about investing is that’s important to understand, that it’s — it’s like horse races and — and — and betting on — on the winning horse.

The best horse is not necessarily the best bet in a horse race because of the way it’s discounted …

RITHOLTZ: Versus the odds, right.

DALIO: … and the odds. You can just as likely win by betting on the worst horse in the horse race because the odds reflect that. The markets are like that.

So, you can’t just pick the best companies. You — you have to look at what’s discounted. The worst companies at the right price could be a much better investment than the best companies. That has to do with then how you’re looking at such things. But anyway, that’s probably a too longwinded answer with your question.

RITHOLTZ: No, no, it’s great, and it’s made me think of three questions I have to ask about. The first is CBDCs, the central bank digital currencies. Is — is that a likely possibility that we’ll see the Federal Reserve or the Bank of Japan or the Bank of England or the Chinese Central Bank issue digital currencies?


RITHOLTZ: And then second, if the current trend continues with the rise of China and the U.S. flailing and there’s a potential shift from the dollar as the reserve currency to the yuan might it not go to the yuan, might it go to some basket of cryptocurrencies or something else if people don’t trust governments no matter what their elk is.

DALIO: Possible.

RITHOLTZ: Possible.

DALIO: OK. So, I think the environment that we want to emphasize is that we will come into an environment in which there will be more competition for currencies, OK?

RITHOLTZ: So, it’s not just …


RITHOLTZ: … China versus the U.S., it’s even bigger than that.

DALIO: Right. But even today, think of that where that takes us. We are today in a dollar world.


DALIO: How much do you think and how much does the average American think? Here’s my menu, and what do I want to select from that menu as regards to the currency? Not much, OK, not much. And they will, OK, because digitally. And this is a threat to central banks because if you could digitally go on and buy a bitcoin or a digital yuan or whatever that is …

RITHOLTZ: Ethereum or whatever happens today.

DALIO: … whatever those are — and gold and all of that menu, the world changes, OK? The competition changes. And we are moving toward that.

RITHOLTZ: And — and you mentioned productivity. I — I have to bring that back to the inflation question. What we’ve seen over the past three decades has been massive uptick in individual productivity enabled primarily by technology, which has led not to an inflationary environment, but a deflationary environment, which seems to have these periodic spasms of inflation. So, could we stay ahead of inflation …

DALIO: Yeah.

RITHOLTZ: … if we enhance our productivity?

DALIO: We just have to look at the mechanics and the attribution of that. Absolutely right. We — as I say there are five — these five major forces, the financial, the — how we are with each other internally, how we are with each other externally. Then there are these acts of nature that come along …


DALIO: … the once in a time pandemic or the once in a lifetime storm and so on. And then number five is a man’s inventiveness and the inventiveness of technology. And it is the greatest single power.

If you look at history and you — I show your charts in the book, the other things don’t matter much. Over the long-term, they don’t matter much. They produce the big cycles. But that improvement and that force is the best it has ever been because we have developed how our ability to think in better ways because we’ve used technology to use our brains in a complimentary way with technology. So, our capacity to invent and come up with greater productivity and adaptations to these risks is greater than ever. And so, that force is phenomenal. That is a deflationary force, in other words, inventiveness and productivity is a deflationary force. And that’s exactly right.

However, at the same time, the capacity to print and — and produce money in credit, if it is greater that — that deflationary force will produce an inflationary consequence. So, both are at work, and you have to follow each one of them. Take a look at each one of those. At what rate do we change productivity and then at what rate do we — are we changing the amount of money and credit in existence. That’s what you have to look at when judging inflation.

RITHOLTZ: And this is why I think you mentioned the external competition, but this is very much an internal competition. Forces of deflation and technology on one side, forces of inflation and money printing on the other.

DALIO: That’s right. And certainly, that productivity is going to help us a lot.

RITHOLTZ: And — and you — you discussed that extensively in the book. And I just have to share some quotes about the book before we start running out of time. Two, in particular, just left out. Hank Paulson, former Treasury Secretary and Chair of Goldman, after reading this book, you probably won’t see the world the same again. And then Jamie Dimon, inspiring and thought-provoking experience. That — that has to be incredibly gratifying to put all this time and effort into writing the book and getting that sort of response.

And by the way, it’s not just — I — I — I just happen to pick two people from finance, but Henry Kissinger, “Dalio has a special talent for identifying key questions of our time. His sweeping new book is a serious contribution and an urgent warning.” What’s your response when you get that sort of stuff?

DALIO: You know, we’ve had conversations, and I was — and they believe the same thing. I don’t want to put words in their mouth. But I say, OK, speaking up, there’s a reluctance to speak up.

RITHOLTZ: Why is that?

DALIO: I think things are controversial, and — and there’s an environment of, you know, stick to your lane, do your job, and so on. And I think that now you’re going to hear a lot more speaking up about these kinds of issues.

They viewed that, you know, like one of the joys or one of the ways that I can learn so much is by being able to speak to different people, leaders in different countries, and those scholars, and — and so on. And I learned a lot through that particular process. And then we got to, OK, what is true and how does it work?

And that book operating that way and laying it out with not opinions, but numbers so that you can objectively measure what’s happening, you could look at the graphs and so on. All of that we agreed was helpful approach to know where we are and what the patterns are. And so, yeah, it’s gratifying, but more important gratifying. I’m not sitting here being gratified. I’m saying I really do believe it’s important, OK.

And the fact that they believe it’s important, and the fact that they are saying …

RITHOLTZ: Pay attention.

DALIO: … pay attention, OK?

RITHOLTZ: You’re — you’re moving the needle.

DALIO: Is — it is — that’s gratifying. If it’s valuable, it’s gratifying, and they think it’s gratifying. So today we’re talking about it, and that’s gratifying.

RITHOLTZ: There’s a book — you’re reminding me of a book. I’m trying to remember the name of it. It might be “Black Box Thinking,” where they talk about — first of all, the black box and commercial aircraft is orange so you can spot it underwater in the dark, but we still talk about it in — in black box terms. But there were certain — unlike a lot of areas, the aviation industry is very much into your cycle of a mistake occurs, why? What can we learn from it? How can we fix it? Now, let’s — let’s try the next level.

And I recall reading about a crash in — in this book. The copilot knew something was wrong, but the culture was such that you didn’t challenge the pilot and you didn’t upset the existing order, and literally, the plane would go down until people figured this out and said as a copilot, you have to step-up and say, “There’s a problem here. We can’t just continue and here’s what it is.” You’re — you’re saying that’s a similar issue. We don’t raise this because, Ray, you’re a money manager. Stay in your lane.

DALIO: What you just described is — is how life works. We all have challenges. Sometimes they pile up and we have a number of those challenges. And it’s a test of how we can learn and adapt. And then the — you know, then those who do that better survive and those that don’t do that as well don’t.

RITHOLTZ: And you don’t just mean individuals, you mean countries and societies.

DALIO: That’s right, individuals, countries, societies, species, OK? It’s the — it’s — so let’s say we — now, how prepared are we for are we financially prepared? How — you have — pandemic comes along.


DALIO: And how are you financially, how are you prepared, how you operate it? Can you work together? Can you do the things? There’s basic things. And — and then can you adapt?

There was — I forgot who made the quote, but it’s a quote that sticks in my mind that man’s superiority is not in being able to be smarter or working harder. It’s in the capacity to adapt, that those species and those who adapt well.

When you look at the virus, isn’t it an interesting thing when we think about it. Here is the species, it’s a good comparison of no brain …


DALIO: … versus a brain and a lot of thinking. And these species, the virus is adapting and is modifying, and it’s in a competition with these other species that is thinking and trying to figure it out.

RITHOLTZ: Well, part of the species is thinking part, not so much.

DALIO: OK, but I’m saying, OK, now we do that …

RITHOLTZ: But that – that’s the vibe we were talking about.

DALIO: … but — but — and so when we understand, let’s say, evolution, the capacity to adapt well to make those changes, and how do you do that because you get feedback. And if you don’t adapt, if you go — if the plane goes down because you don’t want to talk about it and you don’t want to challenge it, that’s a part of natural selection, and that’s a problem.

RITHOLTZ: So — so one problem we — we hear — it is 90 minutes later, we haven’t even brought up a looming problem that we haven’t addressed, and I know it’s an interest of yours is global warming, the environment, the oceans. What do we do as a species to make sure that we don’t make ourselves extinct? Are we cooperating or are we adapting to the changing environment or are we heading down a dangerous path?

DALIO: Yeah. So, man is about 200,000 years old and the history of species, the world is …

RITHOLTZ: It’s a blink (ph).

DALIO: … 3.9 billion years old.


DALIO: And so, man is a relatively new species. And the history of species is that they either change and adapt or they go extinct.


DALIO: And the interaction with what we’re producing with the environment is having not only implications for the — the hospitability of the environment that we’re in and so on, but it’ll have a lot of implications — big implications. And we’re seeing it not — it’ll be costly, but it also, you know, it’s a big challenge. It affects diseases as well. Pandemics are associated with the environment and so on. It’s a test of man’s — it’s a test, OK, a man’s adaptability, the ability to work and solve problems.

I remember when — in the 1970’s, the club of Rome, and I remember when the world was — we would — we would say that we were running out of food. They were starving in India.


DALIO: And — and the population growth was greater than the resourcing, and they had this club of Rome that brought everybody together in order to deal with that issue. And there were two schools of thought, that which is disaster will happen unless we (inaudible) those radical changes. And then there was the other school of thought that we may — that we have a capacity to adapt and change. And now India is the net exporter of grain and this isn’t it.

So, the question is really the adaptability. Man has a great adaptability, but he — but by neglecting it, then there are consequences. And so, — and there are big consequences, so it’s certainly we’re beyond the point of the fact that there will be big damages, OK, and there will be big consequences to beg. Sea level changes, many crop changes, but how far it goes will be a test of man’s ability to adapt to it.

RITHOLTZ: So, you mentioned sea level changes. I know a passion of yours is the ocean, and you recently outfitted a new ship to explore the ocean, to do scientific research. Tell us what’s going on with that. I know that something is coming up with that and Disney. Give us a — a preview.

DALIO: Yeah. Ocean exploration, yes, has been a passion of mine. I — I think the ocean is our greatest asset — our biggest asset. Seventy-two percent of the world’s surface is — is the ocean. And — and when you look at it, the area above that as all the continents combined is less than half of all that’s going on underneath the ocean. And it’s such — so important to us and it is also the most exciting fascinating place to be, there’s just a sheet over it, we don’t go into it and so on, and it’s very valuable.

So, for all those reasons for the last 11 years I’ve done that exploration, so OceanX. You can — if you’re interested, go on YouTube or something and — or Google OceanX. That’s the — the ship and the — the endeavor. So, I support — it’s — it’s a ship, but it’s also we’re supporting philanthropically scientists, research, and so on going at — and we want to make — I was inspired by Jacques Cousteau.

RITHOLTZ: Oh, sure. As a kid I watched all those shows.

DALIO: OK. So — and that brought me closer to the ocean and excited me. And so, that’s what this — the show that you’re talking. I agreed — Jim Cameron, Avatar, Titanic and …

RITHOLTZ: Titanic, sure.

DALIO: … so on — is a great ocean explorer. So, he’s — he agreed to be a thought partner on the media part, so he’s executive producer. And we’re going to show the exploration, these people who are going down there and going to show it. And right now, it’s being shown on — on streaming. There’s media — OceanX Media is putting out lots of stuff that is going on on that, and so you can watch it. But that we estimate because it’ll be on National Geographic on Disney and Disney+ …

RITHOLTZ: Disney+, yeah.

DALIO: … we estimate that it’ll be between half a billion and a billion people will basically be watching it.


DALIO: And I’m excited about that because I think that that’s very important.

If you want to see aliens, you’re not going to see them in outer space.

RITHOLTZ: Got to look on the blue water.

DALIO: You got to go on the water.


DALIO: It’s valuable, it’s exciting, and it’s important, and so that’s what that’s about.

RITHOLTZ: So, I want to leave on a little bit of a hopeful question. You set-up a lot of scenarios where looming civil strife, external competition, potential loss of the reserve currency, all sorts of terrible things, what should we be hopeful about? What — what is a good outcome for the United States and for humans as a species?

DALIO: We — well, we can do this. We have the ability to — to do these things. One of the reasons I put out the book is I have a principle, which is if you worry, you don’t have to worry. And if you don’t worry, you need to worry because if you worry, then you won’t — we will take care of the thing you’re worrying about, and it won’t happen to you, OK? So, when I look at that, if — we have the capacity to do that.

RITHOLTZ: To not only resolve our internal differences and our economic problems, but resolve the global potential threats to the species.

DALIO: Yes, we have all of that potential with us. And I think that if we understand the patterns of history and understand the junctures, and that you look at that and you imagine what a civil war of sorts would take place because we can have a civil war of sorts or an external war or we can have a financial crisis. And if you visualize that, you won’t want that. And maybe that drives people together to work, to overcome that common challenge that we have. And if they do, we have the capacity to — to handle that well.

RITHOLTZ: Ray, it’s always a delight to sit and chat with you. I always find these conversations endlessly fascinating. I have another four hours of questions, but I think 90 minutes is about as much time as I can ask from you.

We have been speaking to Ray Dalio. He is the founder of Bridgewater and the author most recently of “The Changing World Order: Why Nations Succeed and Fail.”

If you enjoy this conversation, well, be sure and check out any of the previous 400 discussions we’ve had prior to today. You can find that at iTunes, Spotify, wherever you get your podcasts.

We love your comments, feedback, and suggestions. Write to us at Check out my daily reads at Follow me on Twitter @ritholtz. Follow Ray at

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