Original Title: A Legendary Investor on How to Prevent America's Coming 'Heart Attack'
Original Authors: Emily Holzknecht and Sophia Alvarez Boyd, the New York Times
Translation: Peggy, BlockBeats

Editor's Note: Against the backdrop of a high U.S. fiscal deficit, escalating geopolitical conflicts, and a reexamination of the U.S. dollar's credibility, discussions about the United States are shifting from "Is it still the world's strongest economy?" to "Is the institutional framework, debt, and international order that underpin U.S. hegemony still stable?"

However, as the narratives of both "America remains strong" and "America is unraveling" coexist, a more crucial question emerges: Is the United States facing a mere cyclical adjustment or a loosening of a long-standing order?

This article is translated from an interview with Ray Dalio on The New York Times podcast "Interesting Times." Dalio is the founder of Bridgewater Associates and has long observed macro order changes from the perspectives of debt cycles, reserve currencies, and the rise and fall of empires.

In this conversation, Dalio breaks down the U.S. issue into a set of underlying structural variables: how debt is accumulating, how politics is tearing apart, how the international order is failing, and whether technology can still provide new productivity exports.

First, the debt cycle is altering the nation's capacity. In the past, the U.S. relied on robust fiscal credibility and the reserve currency status of the dollar to finance itself at relatively low costs for extended periods, sustaining defense spending, welfare, and global commitments. However, with expenditures consistently surpassing income, increasing debt, and interest burdens, fiscal space is continually shrinking. This implies that debt is no longer just a number on the balance sheet but will gradually translate into a constraint on national action: whether it can continue to protect allies, maintain welfare, and bear the costs of war will all be restricted by fiscal realities.

Second, domestic political division is becoming entwined with issues of wealth distribution. In the past, U.S. political divides could be partially absorbed in growth, tax, and welfare expansions; although different groups had conflicting interests, they still shared a system of institutional trust. Now, with income inequality, ideological conflicts, and polarization between left and right compounding, any deficit reduction plan will touch upon the question of "who pays more taxes and who receives fewer benefits." This means that fiscal adjustments are no longer just technical issues but political legitimacy issues. The more reform is needed, the harder it is to reach a consensus.

Third, the international order is shifting from rules back to power. Since 1945, the U.S. has led in establishing a world order centered on multilateral institutions, rules-based systems, and dollar credibility. In the past, despite the Cold War, the U.S. still held overwhelming advantages at the financial and institutional levels. However, geopolitical conflicts, alliance restructuring, and supply chain security issues are now undermining the stability of this order. Analogies to Iran, the Strait of Hormuz, and even the Suez Crisis all point to the same issue: when rules cannot be enforced, the market will eventually reevaluate the relationship between power, credibility, and security.

Fourth, the pressure on the US dollar does not mean that the RMB will directly take over. Dalio's assessment is more nuanced: the RMB may become a medium of exchange in more trade scenarios, but this does not mean that Chinese debt will become the world's most important wealth storage tool. The real issue is what kind of safe assets funds will seek when fiat currencies are facing depreciation pressure. The resurgence of gold in central bank reserves is a manifestation of this uncertainty.

Fifth, AI could both mitigate and exacerbate the crisis. In the past, technological advances were often seen as an important export from the United States to address debt and growth issues; if AI can significantly increase productivity, it could indeed improve income, growth, and debt repayment capacity. However, AI is now also creating new wealth concentration, job displacement, and security risks. It may act as a buffer to fiscal pressure, but it could also become a new amplifier of social division and geopolitical competition.

If this conversation is condensed into one assessment, it would be this: the United States does not face a single crisis, but rather a simultaneous reassessment of debt, politics, international order, and technological variables.

In this sense, the subject of this article is no longer just whether the United States is in decline, but a larger structural issue: when the old order can still function but its underlying conditions are loosening, how should markets, nations, and individuals reconsider "safety" and "credit"?

The following is the original content (slightly reorganized for better readability):

Image Source: The New York Times

TL;DR

· Dalio's core assessment is that the United States is not experiencing short-term weakness but is entering a downward phase in a major cycle.

· The real risk for the United States is not being broke but having too much debt, gradually eroding the nation's capacity.

· The deficit is the most difficult to resolve because it ultimately becomes a political conflict of "who pays and who gets the benefits."

· The underlying cause of US political division is not just values but an imbalance in wealth and interest distribution.

· The post-World War II US-led rules-based order is failing, and the world is returning to a power-play.

· The US dollar will not be immediately replaced by the RMB, but the world will pay more attention to safe-haven assets like gold.

· AI could rescue growth, but it could also further fracture employment, wealth, and security order.

· The key to whether the United States can recover lies not in the market but in education, social order, and avoiding war.

Original Text

I feel like we are currently at a moment of "American Empire Decline."

Part of it is the stalemate in the Iran conflict; part of it is Donald Trump putting pressure on America's alliances; and part of it, I think, is a growing sense: America's biggest competitor, China, is watching from the sidelines, biding its time, waiting for its collapse.

This week's guest, who has long been focused on this issue, has a grand historical theory predicting America's decline. To some extent, he is a somewhat atypical "Cassandra" figure—constantly issuing warnings that may not always be taken seriously.

Ray Dalio started from scratch to build one of the world's largest hedge funds, Bridgewater Associates. But now, what he most wants to talk about is no longer just markets and investing but America's imperial decline and whether we still have a chance to pull this "American Empire" back from the brink.

Below is the edited transcript of an episode of "Interesting Times." For the full effect, we recommend listening to the original audio. You can listen on the player above or through The New York Times app, Apple, Spotify, Amazon Music, YouTube, iHeartRadio, and other podcast platforms.

The Cycle Logic of American Crisis

Ross Douthat (Host): Ray Dalio, welcome to "Interesting Times."

Ray Dalio (Bridgewater Fund Founder): Thank you. It's indeed interesting to be a guest on "Interesting Times" during these "interesting times."

Douthat: That's what everyone says. You are someone who has bet your whole career and has been right on a lot of your calls over the past few decades. Lately, you've been saying that perhaps at this moment, the United States of America might not be such a good bet.

So, if someone is looking at America right now, trying to judge whether they should bet on the "American Empire" remaining dominant in the 21st century, what key forces or factors should they be looking at?

How Debt Is Dragging Down National Power

Dalio: I want to correct that statement first. I'm not saying that the United States is a bad bet or a good bet. I'm just describing what is happening.

In my roughly 50 years of investing experience, one thing I've learned is that many events that are very important to me have never happened in my lifetime, but they have happened many times throughout history.

So, I began to study the past 500 years of history, trying to find out the reasons behind the reserve currency and the rise and fall of empires. You will see a certain pattern time and time again. There is indeed a "long-term cycle," and the starting point of this cycle is often the formation of a new order.

Orders come in three types: monetary order, domestic political order, and international world order. These are three important forces that are constantly evolving.

Let's first look at the first force, which is the monetary order. There is a debt cycle here. When debt relative to income keeps rising, and debt service relative to income keeps rising too, whether it's a country or an individual—

Douthat: Or an empire.

Dalio: Any entity for that matter!

Douthat: Yes.

Behind Political Division is Wealth Distribution

Dalio: All of this squeezes out other spending. That's the problem. For example, the U.S. is now spending about $7 trillion a year, with about $5 trillion of income, meaning spending is about 40% higher than income. This deficit has been going on for a while, so the U.S. has accumulated debts that are about 6 times its income—this income refers to the money actually received by the government.

That's right. But the result of doing this is that the currency itself will be devalued. That's how it operates. And it is because of this that there is a long-term debt cycle, as well as short-term debt cycles, currency cycles, and economic cycles—they drive the economy from one recession to overheating, and then to the next recession.

Related to this is the domestic political and social cycle, which is closely linked to the monetary issue. When there is a huge wealth gap and value differences within a society—

Douthat: You mean the wealth gap?

Dalio: The gap between the wealthy and the poor, as well as between people with different values. When these differences develop to an irreconcilable extent, political conflicts arise, and these conflicts are serious enough to put the entire system at risk.

So, I believe the first cycle is happening. I also think the second cycle is happening—the irreconcilable differences between the political left and right. We can discuss more about this later.

The World Order is Returning to the Logic of Power

Douthat: How have international factors played a role?

Dalio: The international level operates under the same logic. After a war, there emerges a dominant power that establishes a new world order. The so-called order is a system. This cycle of order began in 1945.

Douthat: That's true for us. The United States was the dominant power that established this system at that time.

Dalio: Exactly. The United States established a system that was largely modeled on the American system because it was intended to be representative. For example, the United Nations is a form of a multilateral world order. Different countries can operate within it, and in theory, there should be a rule-based system.

But the problem is, without an enforcement mechanism, this system will not be truly effective. It is an idealistic system, and while it was able to hold, it was indeed a good system. But today, we no longer have a truly rule-based multilateral system.

We are returning to a state that existed before 1945 and for most of history: geopolitical divisions will continue to arise, such as the current situation surrounding Iran.

How will these divisions be resolved? You won't submit it to an international court, wait for a judgment, and then have the judgment enforced. Ultimately, what matters is power.

Douthat: That's right. However, even during the heyday of what we understand as the "rule-based international order," firstly, for most of that period in history, the United States was also constantly in conflict with the Soviet Union.

Dalio: That's correct.

Douthat: In other words, the Cold War persisted. The window of time when there was a real departure from major power conflicts and the system operated purely was actually quite short. And even during that period, U.S. power ultimately remained a decisive force, right?

Dalio: Absolutely. Because the Soviet Union did not have real power in the true sense. It had military power, but at the end of World War II, the U.S. held about 80% of the world's monetary wealth, possessed half of global GDP, and was also the leading military power. Therefore, we had the ability to provide funds externally, and those who received this money valued it greatly. In contrast, the Soviet system was only a very limited part of it. Financially, it was almost bankrupt and certainly not a significant power.

Douthat: So, the military balance of power is real, but when it comes to the balance of financial power, it's basically America calling the shots.

Dalio: That's right. Fortunately, in a "mutually assured destruction" scenario, we haven't actually utilized that kind of military power. Nonetheless, I still remember the Cuban Missile Crisis — I was a kid back then, watching the situation unfold, not knowing if a nuclear confrontation would happen. But it didn't come to that, and later the Soviet Union disintegrated.

Douthat: In your cyclical view of history, what role do random events play?

Dalio: All events are interconnected. I think the key question is: Will they lead to disputes? And in a world without a court system to resolve disputes, both domestically and internationally, how will these disputes be settled?

For example, what's happening in the Middle East now, especially the situation with Iran. There is a conflict there, which then escalates into war because there are no other ways of resolution. And what the world is now watching closely is: in this war, can America win or will it lose?

When we look at this matter, we almost tend to measure it by a black-and-white standard: Who will control the Strait of Hormuz? Who will control nuclear materials? Can America win this war?

We should also see that there are alliance relationships behind this. Russia and Iran tend to support each other, just as there are supporting forces on the other side as well.

Douthat: To emphasize again, is the most distinctive aspect of this moment compared to the past few decades that the other side's power is stronger?

Dalio: It's the relative shift in power and the breakdown of the existing order. Additionally, there is a massive debtor-creditor relationship entangled. For instance, when the U.S. runs large deficits for a long period, it has to borrow money. And during times of conflict, this becomes very dangerous. Interdependence is also at play.

In other words, in a riskier world, you must have self-sufficiency because history tells us that you could be cut off at any moment. Any party could be cut off.

Douthat: Yes. I am very concerned about how these factors are intertwined. Suppose the ultimate outcome of the Iran issue is that people believe the U.S. lost the war, or at least did not achieve its goals. Perhaps the Strait of Hormuz remains open, but the Iranian regime remains in power, and there is a perception outside that the U.S. tried something but failed. Do you think this perception would in turn affect people's judgment of the U.S.'s debt repayment credibility?

Dalio: I've just spent about a month in Asia, meeting with leaders and others from different countries. The impact of this event is significant, much like the effect of the UK losing the Suez Canal back in the day—when Egypt controlled the canal. That was seen as the end of the British Empire. In other words, it was a very significant event.

Douthat: Yes, that was in the 1950s.

Dalio: Exactly. And that was also when people no longer wanted to hold UK debt and other assets. Now, the question different countries are pondering is: Will the US still protect us? Or rather, does the US no longer have the ability to protect us? Because the American people are not keen on fighting a prolonged war, so wars must end quickly, not be too costly, and—

Douthat: Also be popular, right?

Dalio: It needs to be popular.

Douthat: And our wars nowadays are generally not very popular. But I'd like to dwell on this Suez analogy because I find it quite intriguing. I've heard many people using this analogy. In the Suez Crisis, the UK, France, and Israel essentially tried to regain control of the canal after Egypt nationalized it.

So it's quite obvious that this has similarities to Iran: a crucial chokepoint in global trade, with Western powers and a regional power vying for control. But in my view, the key to the Suez event is that Dwight D. Eisenhower and the US essentially told the UK: No, you can't do this.

Therefore, the crisis of confidence in the British Empire, the Pound, and everything else, partly stemmed from this understanding: as you just said, this was the post-WWII order, with the US as the leader.

So, does China now need to play a similar role? Do we need a similar moment to truly erode confidence in the US? Do people need to see a new hegemon emerge before they abandon the old hegemon?

Dalio: By the way, I don't believe China will ultimately become that kind of traditional hegemonic power. We can delve into that question later.

Douthat: I'm very interested in that.

Dalio: What I want to say is that the UK's decline was actually underway before the Suez Crisis, as people had already realized that the US was not only a global power but also in a better fiscal position.

Douthat: So, if this analogy does hold, what would be the equivalent today? If people come to believe that the United States is no longer as trustworthy as we once thought, that its likelihood of repaying its debts is lower, and so on—perhaps this also relates to what you just mentioned about China and whether China might become the new hegemon—will people turn to China? Will they abandon the dollar as a reserve currency? If confidence in the United States is lost, where will the capital flow?

Dalio: I would like to share my view. But first, I want to say that this is actually a typical phenomenon in each cycle. For example, when the UK replaced the Netherlands, the process was similar. The UK was stronger financially and had greater overall capabilities. The Netherlands lost, leading to a shift from the Dutch Empire to the British Empire; and the Netherlands had the reserve currency and debt at that time. Similar things have happened repeatedly in the same way.

So, you don't necessarily need a specific figure, such as President Eisenhower—

Douthat: No, but you need a successor power. That's what I'm getting at.

Dalio: So, I think what will happen next is—answering your question about where the capital will flow, where the wealth will go—a country can still be a dominant power while also experiencing serious financial problems.

For example, in 1971, when the monetary system collapsed, the US was still a dominant power. In 1971, the US had too much debt and could no longer fulfill its commitment to deliver gold, so the monetary system collapsed. We then experienced stagflation in the 1970s. A similar situation could still occur.

The Dollar, Gold, and Wealth Preservation

Douthat: So that's a scenario: you have a crisis but no successor power yet. The Soviet Union did not replace the US in the 1970s.

Dalio: That's correct.

Douthat: The US just went through a very bad decade.

Dalio: Your financial situation would still be very bad. And that means holding bonds is not a good way to store wealth. To answer your question, money has two functions: it's a medium of exchange and a store of wealth.

I think now you will see, for various reasons, that the Chinese currency is increasingly becoming a medium of exchange. But I am very skeptical that Chinese debt or similar assets would be a serious store of wealth, as historically they have not been good at wealth preservation.

Douthat: Yes.

Dalio: And I don't think any fiat currency is going to be a good storehold of wealth.

Douthat: Explain to our audience, fiat currency refers to a currency issued by a nation-state but not backed by gold or any other asset, right?

Dalio: It's a currency that they can just print.

Douthat: They can print money.

Dalio: So, when we look back in history, we see that in all similar periods, all fiat currencies devalue, while gold appreciates. Now, gold is the second-largest reserve asset of central banks around the world. In other words, the dollar is first, followed by gold, then the euro, and then the yen.

So, I think the real question is: What kind of currency can serve as a store of wealth? Gold has become the primary contender largely by default because it has proven itself a winner over thousands of years of history.

Douthat: So, you're saying that alternatives to the dollar will become more attractive, but that doesn't mean a direct shift to "let's go buy Chinese debt"?

Dalio: From a trading perspective, the traditional way it works is this: when countries start trading in a certain currency, they gradually build up reserves in that currency. It's like their checking account — they need to have enough cash on hand to pay for what they've just bought. So, I expect those reserves to increase.

The challenge is whether storing wealth in this debt asset will be viable. So we are entering a new world where everyone is asking: What is a safe storehold of wealth?

Douthat: For the average American looking at this cycle you're describing, thinking, "Okay, this has happened before and is happening again. We're in a period of living beyond our means, spending beyond our capacity, so there will inevitably be an adjustment — what kind of adjustment do you expect?"

One possibility is the 1970s scenario: high inflation, slow growth, a period known as stagflation. Another possibility is a Great Depression-style scenario: a financial market collapse leading to a crisis, resulting in poverty and deflation. In the current environment, which one should we be most concerned about?

Dalio: I think what everyone should be most concerned about is the part of the future that they do not understand, you know?

Douthat: I see. I'm actually concerned about this as well. That's why I wanted you to tell me.

Dalio: So what I mean is: We don't know what the world will look like in three to five years. The things we don't know far exceed the things we know. I think what we can be sure of is that we are entering a more disorderly age, and that is precisely where the greater risk lies.

So, what do I think the answer should be? I think the answer is to know how to build a well-diversified investment portfolio that is broadly prepared for this kind of uncertainty.

In short, if you ask, "What should my typical investment portfolio look like?" it would include stocks, bonds, and investments from other countries—diversification is good. As for the specific allocation, I can't break it down here. But I believe that any portfolio should have 5% to 15% allocated to gold because when other assets are in a real mess, gold tends to perform the best. Anyway, this is also one of the reasons why gold has been an excellent investment in recent years, as the market is moving in this direction.

So I would say: maintain balance, learn to make your portfolio highly diversified, thereby hedging against other risks.

Douthat: As an investor, I do want to hear investment advice. But as a commentator, a columnist—whatever I am—I am more interested in describing or anticipating reality. Even acknowledging that we can't know the future exactly, if history does have these lessons, if these cycles do indeed repeat, and we are heading towards some kind of bottoming out or reset, maybe with a bounce back afterwards, I just want to clarify, in your view, what is life at the bottom of a cycle like? Is it more like long-term stagnation and sustained discontent, or more like a crisis erupting, street conflicts kind of scenario? Because the '70s and the '30s seem to be very different examples. That's my question.

Dalio: I can tell you what I'm worried about. I believe we are facing several major issues right now: a monetary issue, domestic political and social issues, and international geopolitical issues. Looking at the timeline, we are approaching the midterm elections. I think the Republican Party is likely to lose control of the House. After that, you will see political and social conflicts escalate further, especially in the period from that election to the 2028 presidential election.

I'm concerned that these divisions may become irreconcilable. I don't know how things will unfold. I don't know if respect for rules, laws, and order, among other things, can still maintain law and order.

I'm worried—but I'm not predicting—about more widespread violence. Indeed, more widespread violence could occur. The number of firearms in America exceeds the population.

Douthat: Population—

Dalio: I'm not predicting—please let me finish.

Douthat: Okay.

Dalio: I'm just seeing these possibilities. I think everyone can observe their own surroundings and make their own judgments. Overall, in response to your question, my reaction is: we are entering a more disorderly period. I think the risks are greater than in the past, and it's evolving along that trajectory. We are now talking in words, but I usually chart these patterns to observe, and these things are conforming to those historical patterns.

You asked me this question, and I gave my answer. It is also for these reasons that I believe people should keep their investment portfolios well diversified and remain vigilant about these things.

Douthat: Can you talk about how, in your view, the debt landscape interacts with the political and social landscape? Because if you ask people now what they are divided on, they usually won't say it's the national debt interest payments. They will list a long string of divisive issues.

I'm just curious: when interest payments rise and squeeze out other forms of investment, what kind of economic forces are at play that interact with societal disorder?

Dalio: Their divisions are fundamentally around "who has how much money, and who can get that money," and this is closely related to the fiscal deficit.

I recently wrote a book trying to explain this mechanism through 35 cases, titled "How Countries Die." I have also been in discussions with high-level officials from both the Democratic and Republican parties, and everyone agrees on these mechanisms themselves.

When I sit down with them and say, you need to, in some combination—raise taxes, cut spending, control interest rates—bring down the fiscal deficit to 3% of GDP, because mechanistically that's the only way.

Then they say, Ray, you don't understand. To win the election, I have to make at least one of two commitments: "I won't raise your taxes," and "I won't cut your benefits."

The division in this country is reflected in the gap between the billionaire class and those financially struggling, between the left and the right, between populism, and so on—and all of these contain monetary and financial elements. So, the fiscal deficit and monetary issues are a very important part of social conflict.

Douthat: So, when you talk to politicians about this, and they explain to you that we can't raise taxes and can't cut spending, I imagine they will then say, people will perceive these actions as threats to opportunity or equality. Those relying on Medicare and Social Security see this as equality protection; while those relying on low taxes to start businesses see it as opportunity protection.

If you want to persuade these people to reduce the fiscal deficit to 3% of GDP, would you tell them that doing so is to spare them from what?

Dalio: To spare them from a financial crisis.

Douthat: So if the United States were to experience a financial crisis, what would it look like? Specifically, what would happen?

Dalio: A financial crisis means that the government's spending capacity would be very limited. In other words, you cannot afford military expenses, social welfare payments, and so on. Fiscal policy would be significantly constrained. Due to demand-supply imbalance, interest rates would rise, which would suppress borrowing, disrupt markets, and so on. This would then compel the central bank to try to balance the situation by printing money, resulting in currency devaluation and creating a stagflationary environment.

Douthat: I see. So it sounds like the worst-case scenario would be: a financial crisis similar to 2008 eventually evolving into 1970s-style stagflation? Sorry, I don’t mean to force you into—

Dalio: No, no, I’m happy to try and answer as much as possible.

Douthat: I just want to give you some background: I am 46 years old this year, and almost my entire life has been lived under the shadow of predictions about the “unsustainability of the U.S. fiscal deficit.” The first presidential election I really remember was in 1992 with Ross Perot, and his campaign was largely centered around these themes.

But like many Americans, this also means that I often automatically tune out arguments about the fiscal deficit. The first time since the 1990s that I truly felt like the deficit and overspending were impacting ordinary people’s wallets was during the early years of the Biden administration’s inflation.

So I think, for me and the audience, it is helpful to specifically understand this point: why will the 2030s, or the late 2020s, be different from the past 20 years? After all, we have had these deficits for the past 20 years.

Dalio: Thank you for your curiosity! And I feel I have to answer this question. It's like plaque building up in your arteries. It's like you say, “I haven’t had a heart attack yet.”

Douthat: “I feel pretty good.”

Dalio: And then I can say, “Okay, I understand, you haven’t had a heart attack. But can I show you an MRI to let you see this plaque accumulating in your body's system? Can you understand what I mean by this plaque and how if it continues to develop, you will have a heart attack? Can you understand? Can you understand what these numbers mean, where you are right now? Listen, this is your life, it's your choice. You have to ask yourself: ‘Is this right or wrong?’ This is something you must do for your well-being.

Douthat: In your narrative, when we combine this diagnosis with your assessment of how the American political system currently operates — which is also my assessment — it seems to imply that before real change can occur, America will have to go through at least a mild "heart attack."

At the beginning, you mentioned that despite me, as the podcast host, framing the question this way, you're not actually bearish on America. So, do you optimistically think that America may go through a so-called "minor heart attack" and then recover?

Can AI Ease America's Predicament?

Dalio: I believe we are heading into a more disorderly period because several forces are converging: issues at the monetary level; irreconcilable domestic societal and political divisions; and issues at the international world order level. I would like to add two more factors. One of them is the recurring natural forces throughout history —

Douthat: Such as the pandemic.

Dalio: Droughts, floods, and pandemics. And if you look at most people's assessment of the trend in climate change, it's not improving, it's deteriorating. Then there's technology and AI.

We must include technology and AI in this discussion because they will play a role. And they will play a role in three ways. First, it could significantly boost productivity, thus helping alleviate some of the debt issues — maybe. We can continue discussing this. But I don't think it will happen at such a fast pace.

Douthat: Indeed, I often hear this claim from people in the AI field. They would say that in the best-case scenario, if AI only increases GDP growth by X percentage points and accelerates productivity growth by X percentage points, then it will address the issues you initially mentioned.

Dalio: Absolutely, absolutely.

Douthat: It will make debt more manageable.

Dalio: That's precisely what I mean. Because it can generate income, and that income can help repay debt principal and interest, and so on. So, this is one of AI's three impacts.

The second impact of AI is that it is creating a massive wealth gap. Those who benefit from it are approaching the question of "who will become the first trillionaire." The wealth gap has already widened significantly, and AI will replace a large number of jobs. So, this is the second factor. Regardless of how we handle it, these disparities will be a problem. They need to be addressed, and this is likely to become a political issue, but it is indeed a problem.

Third, technology itself can also be used to harm others—it has tremendous power. It can be used by other countries, by those who want to cause harm, and by those who want to steal funds. It can be used to inflict harm.

Douthat: Right. But in your pattern, your cycle theory, from this last point of view, technology may exacerbate geopolitical tensions. It will strengthen Cold War dynamics and also intensify domestic tensions.

Dalio: Exactly.

Douthat: But it may also alleviate fiscal pressures.

Dalio: Yes, it may bring about productivity gains.

Douthat: But if it brings some negative effects, then it will most likely also bring some positive effects.

Dalio: The key is how these effects ultimately offset each other and achieve a balance.

Douthat: Yes.

Dalio: And we do not know what the future will look like because human capabilities are not sufficient to predict what the world will be like three to five years from now. Over the next five years, these five forces will combine, and the whole world will be like experiencing a time warp. The next five years will see enormous changes, with all these forces coming together. And as we pass through this period, the other side of the world will be almost unrecognizable. It will be very different, a period of dramatic change and intense turmoil.

So, what should one do? Since knowing that it is not possible to truly predict what the future will be like, my own approach—and my advice—is to understand how to balance one's positions.

Douthat: However, for politicians, hearing your argument, maybe they would think: Well, I know Ray Dalio wants us to reduce the fiscal deficit to 3% of GDP, but at the same time, he also believes that we are experiencing an unprecedented five-year "time warp" in human history. Maybe we should wait and see what the world will be like in five years before painfully restructuring Medicare and Social Security.

Dalio: I don't think they care much about how Ray Dalio thinks. (laughs)

Douthat: Uh, that's not what I meant. But—

Dalio: I think they are more concerned about how the ballot box thinks.

Douthat: Yes, of course. I have talked to some people in Washington, D.C., and there have always been people there genuinely concerned about the fiscal deficit issue, and there are indeed people trying to take action.

What I am really interested in is, in your narrative of the rise and fall of empires — the Spanish Empire, the British Empire, the Dutch "small empire," and so on — there doesn't seem to be such a case: a major power going through this cycle, hitting rock bottom as you've described, and then bouncing back, initiating a new period of ascent. Or is there such a case?

Because you see, as Americans, this is precisely our aspiration. If one were to adopt your narrative, they might say: Well, but history is not deterministic. We can make choices, and we can put ourselves on a different trajectory, right?

Dalio: Yes. I think it's possible. But the question is, something has to happen — and history suggests that as well. Plato once talked about this cycle —

Douthat: Yes.

Dalio: in "The Republic." He talked about democracy, and the issues with democracy, because people don't always vote for things that are truly in their best interest and that truly strengthen the country. About 60% of Americans have a reading level below sixth grade, and there are issues with productivity, among others. Yet they vote, and to a large extent determine the outcome.

The question is: How does this change happen in a democracy? In Plato's view, ideally, this is when you need a "benevolent autocrat" — someone who can take control, be strong enough, and be willing to sacrifice for the country. In a way, he can reunite the people.

However it happens, you need a strong leader from the middle ground. He needs to recognize that partisan divisions and conflicts are fundamentally an issue, but at the same time, he needs to have enough power to get people and the whole system to function in the necessary way. This is where some form of debt restructuring could potentially occur, the education system could improve, and structural reforms for efficiency could progress.

Running a large corporation is already hard. Imagine governing this country and governing it well; it would be even harder. So you need an extraordinary individual with great power; you also need strong leadership that can be followed and not continually undermined by any one side.

Douthat: So you're looking for a Franklin D. Roosevelt figure in this particular crisis, or perhaps a figure more like Ronald Reagan?

Dalio: Well, I think it's harder now than ever before.

Douthat: Because we've come so far —

Dalio: Everyone has their point of view. Do you know how hard leadership is? (Light chuckle) I mean, can you imagine? So, can you bring people to the middle, unite them, and make them willing to do the difficult things?

Douthat: Yes. But in these discussions, I often think of one point: We are also indeed very wealthy. Today's America is even wealthier than the 1980s, and certainly much wealthier than during the Great Depression. Despite feeling the pressure of inflation or facing hardship when the unemployment rate suddenly rises, this wealth itself is also a stabilizer.

You can also see another scenario. Take Japan, for example. Japan is a country that has carried a huge amount of debt for a long time, and I wouldn't say it has dealt with it very successfully. Its economic vitality has declined, becoming more stagnant and no longer the Japan of the 1980s or 90s that was thought to potentially "take over the world." However, it has also maintained stability as a wealthy, aging society. Do you think this is a possible scenario for the United States?

Dalio: I think you have raised two questions, although they are related, but I would like to answer them separately. The first question is about a higher standard of living and America becoming wealthier. This has always been true throughout history. In all the periods before World War II, this situation also existed. The real key question is how people get along with each other.

Douthat: Are you suggesting that empires are often wealthier than ever before when debt reaches its peak?

Dalio: Yes. If you look at per capita income, look at many indicators—life expectancy, any measure of well-being—and then draw a chart starting from the 15th century or even from the dark ages of the Middle Ages, you will find that early on, these indicators were relatively flat. That is to say, at every historical moment, looking at the world as a whole, at society as a whole, we are wealthier than in the past. What you said is valid.

But that did not prevent World War II, it did not prevent debt issues, nor did it prevent other things from happening. Because the most important question is how people get along with each other. Can they work together to address these issues? In reality, if a 10% decrease in our standard of living is part of a healthy adjustment, then what?

I'm about to finish, but I want to make this point clear. So that's the first point. Wealth does not alleviate debt issues, nor does it ease the struggle over "who is in control"—

Douthat: But perhaps it can alleviate it to some extent. Like in the 1930s—

Dalio: No, no, no. Hold on. I didn't interrupt you just now. Please don't—

Douthat: Okay, please continue. I apologize.

Dalio: Let me finish speaking first, and then you can respond. As for the situation in Japan—or do you want me to answer this question first and then talk about Japan?

Douthat: Japan, hold on. I just want to ask one more question about what you just said: If you look at the 1930s, the 1970s, and the period after the 2008 financial crisis, they were all some kind of economic crisis period, but things seemed to be getting better. The 1930s were worse than the 1970s, and the 1970s were worse than the 2010s. So, perhaps because we have become wealthier, things can stabilize to some extent, right?

Dalio: Yes. If you look at per capita income, life expectancy—any living standard or similar indicator—you will see a trend—

Douthat: I'm just saying that even in terms of social conflict, the 1970s were not as severe as the 1930s. I'm just trying to express that.

Dalio: Well, I wouldn't emphasize that too much.

Douthat: Alright.

Dalio: In other words, based on various metrics, I would say it's more like the 1930s now. If you look at the severity of debt, the severity of internal conflict—I have lived through those periods. And I would say—

Douthat: So you think our current situation is worse than the 1970s?

Dalio: Our debt situation is worse.

Douthat: That's true.

Dalio: America's position in the world order, and the related conflicts, is also worse than it was then.

Douthat: Understood.

Dalio: So, I think this is an objective fact. I am not deliberately painting a pessimistic picture; I am just trying to do an analysis because my job is to bet right.

Douthat: Alright. What about our "Japanese Future"? Are we going to have a Japanese-style future?

Dalio: The situation in Japan is mainly interesting for two reasons. Japan's debt is mainly held domestically. In that particular case, their approach was: the central bank prints a lot of money and then buys debt. That's what they did. The result was a devaluation of the yen. With the devaluation of currency and debt value, the wealth value of the Japanese people also took a huge hit.

So, yes, we might also see a similar thing happen. But our situation is different: one-third of U.S. debt is held by foreigners. That's not the same. As a country, we owe money to other countries.

Douthat: So here I think—

Dalio: If you think that's a good outcome (chuckles)

Douthat: No, I don't think so. Well, I think—

Dalio: It's like the decline of the British Empire. You might go through something akin to the decline of the British Empire. It's kind of that type of thing.

Douthat: No, I don't think that's a good outcome. The reason I'm interested in it is because in the case of Japan, it looks more like a sustainable stagnation rather than a crisis and collapse. But I think, in one sense, I would agree with you: for various reasons—reasons that are beyond the scope of this conversation—Japanese society seems more likely than American society to accept a decline in living standards. In that sense, it's probably not a model that suits America.

Let me pose one final question to you using a bit of a positive note about my own outlook, which you can respond to. I mentioned earlier that I've lived my whole life in a world where people are constantly worried about deficits and deficit spending. I think, as you say, just because the crisis hasn't happened doesn't mean you won't have a heart attack tomorrow. That statement is entirely reasonable. So I fully expect that the problems you've described will have a significantly negative impact on America.

But at the same time, I do find it a very strange moment: if you look at some indicators, America seems very fragile; but in many ways, America is very, very strong. If you look at the past 10 or 15 years, America's GDP growth has significantly outpaced Western Europe, Canada, and other similar economies. We still have the most profitable, cutting-edge tech companies globally. We still have the most capable military in the world. Societally, we have a lot of problems indeed, but are there other major nations in the world better at absorbing immigrants, with higher birth rates, geographically distant from major wars and refugee crises than America? I'm not sure if there's a better bet than America.

If I look forward 50 years, against the backdrop of the entire world order, isn't America still a place to have some confidence in? How do you see that?

Dalio: I think we mustn't frame the issue in the win-lose manner I initially opposed, like "Will America win or lose?"

I think we know what's healthy. Throughout history, any country that wants to stay healthy needs to do three things. First, educate children well, equip them with skills, high-quality productive capabilities, and civic literacy. Second, have them grow up in an orderly country where people can cooperate, create productivity, leading to broad-based productivity gains and shared prosperity. Third, avoid war. Don't have civil wars, and don't get into international wars. You just need to do those things.

Then you can go look at those basics. Have we brought up our kids well to be productive and capable and to be civil with one another? Do we have a civil community? Do we have an environment that raises productivity and brings people together?

I think where we are now is just terrible. I live in Connecticut, and my wife has been helping the poorest kids get through high school. The achievement gap, the opportunity gap, including the civility gap, is a real issue. So I think the question really comes back to those things.

And those are all basic things. Do you have more income than expenses? What's your income statement look like? What's your balance sheet look like? Those are basic questions. You know these basic questions. So if we can adhere to those fundamentals — yeah, I thank God that I was brought up in America because, wow, it's unbelievable. This used to be a place where anybody from any part of the world could really become a citizen, so it really did have that kind of meritocracy. I come from a lower-middle-class family. My dad was a jazz musician. I could go to a good school, create my own path, you know? I think of that creativity, all those wonderful things — broad-based education, a middle-class society — we used to have a middle class, we used to have those things.

So, I've seen the difference. I know what the basics are. I look at all sorts of indicators, and those indicators worry me.

Douthat: Okay. Ray Dalio, thank you for joining us.

Dalio: Thank you for having me.

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